Meta's strong ad sales dampen tariff-induced fears

By Jaspreet Singh and Kenrick Cai

(Reuters) -Meta Platforms rode strong advertising performance to beat analysts' revenue estimates for the first quarter and match expectations for the next quarter on Wednesday, assuaging investor concerns over tariff-related economic growth fears.

The Facebook and Instagram parent also increased planned capital expenditures this year as it speeds up construction of data centers that can support artificial intelligence, which it sees bolstering and transforming its business.

Shares of the company were up 5% in extended trading.

Meta boosted its 2025 capital expenditure plans to between $64 billion and $72 billion. CEO Mark Zuckerberg previously said the company could spend as much as $65 billion this year.

"The pace of progress across the industry and the opportunities ahead for us are staggering. I want to make sure that we're working aggressively and efficiently, and I also want to make sure that we are building out the leading infrastructure and teams," Zuckerberg told investors on a call after publishing results.

Meta executives said most of the total capex is going towards supporting the core business, such as supplying the computing power for ads, rather than generative AI development.

But CFO Susan Li said on the call that the increase to the forecast reflected a decision to more rapidly ready data center capacity in support of AI efforts, as well as the potential for tariffs to increase hardware export costs.

The increased outlays could help soothe concerns that AI interest might be waning, especially after analysts in March flagged early signs of tech majors pulling back on new data center commitments.

Meta reported revenue of $42.31 billion for the first quarter, compared with analysts' average estimate of $41.40 billion, according to data compiled by LSEG.

It reported profit of $6.43 per share, beating estimates of $5.28 per share.

Meta expects second-quarter revenue to be between $42.5 billion and $45.5 billion, compared with an average estimate of $44.01 billion.

Li said that forecast reflected sales trends from April, but cautioned that the continued economic uncertainty made it especially difficult to predict future trajectory.

Zuckerberg spoke at length about Meta's AI bets being the reason the company is "well-positioned to navigate the macroeconomic uncertainty."

Nearly 1 billion people use Meta's AI assistant on a monthly basis, he said. He added that the company would focus on increasing user engagement for the next year before turning to monetization.

Meta is also using AI to improve ad targeting and recommendations to its social media users.

"If ad revenue continues to hold strong, then this increase in capital expenditures will be less of a bitter pill for investors to swallow," said Debra Aho Williamson, founder and chief analyst at Sonata Insights.

Shares of AI chip makers rose after Meta and Microsoft reported financial results. Nvidia rose 2.7% and Advanced Micro Devices rose 1.8%.

USERS UP

Meta's massive user base makes it a reliable go-to for advertisers at a time when U.S. tariff-induced uncertainty has prompted companies to tighten marketing budgets and delay campaigns.

Family daily active people (DAP), a metric it uses to track unique users who open any one of its apps in a day, rose 6% year-over-year to 3.43 billion.

Advertising accounts for the vast majority of Meta's revenue. Some of the biggest U.S. advertisers include Chinese e-commerce websites Temu and Shein, who are sharply cutting their U.S. digital ad spending, industry data showed.

A day earlier, smaller rival Snap held back its second-quarter forecast and said that economic uncertainty and the administration's ending of a duty-free import loophole were affecting its ad business, causing its shares to crater.

CFO Li said Meta had seen some decreased spending from Asia-based e-commerce exporters, likely for the same reason, but that generally trends in April had been healthy.

Meta's proven advertising reliability means it stands to gain from economic instability, said Emarketer senior analyst Minda Smiley.

However, it "won't be spared from a broader downturn if advertisers make substantial budget cuts and consumer spending falters," she added.

Li also noted a regulatory battle in Europe. There could be a significant impact to the European business as soon as the third quarter due to an EU ruling that Meta breached the Digital Markets Act. Ad revenue in the regions impacted accounted for 16% of Meta's 2024 revenue, she said.

Meta is also facing a high-stakes trial in Washington, in which the U.S. Federal Trade Commission is seeking to unwind the company's acquisitions of prized assets Instagram and WhatsApp.

(Reporting by Jaspreet Singh in Bengaluru, Kenrick Cai in San Francisco and Echo Wang in New York; Editing by Nia Williams and Christopher Cushing)