Meta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2

Key Points

• Meta Platforms' earnings put a smile on shareholders' faces in Q1.
• The company raised its outlook for AI infrastructure spending, reflecting the benefits it is seeing in advertising, but also the negative effects of tariffs.
• Demand remained robust, but tariffs could have a bigger effect in Q2. Still, considering the current environment, Meta is hitting on all cylinders.

Shareholders in Meta Platforms NASDAQ: META, one of the renowned Magnificent Seven stocks, just got a bout of good news. Meta’s Apr. 30 earnings impressed markets, resulting in shares rising over 4% the day after. Due to Microsoft’s NASDAQ: MSFT arguably more impressive earnings, Meta can now only claim to be the second-best performer in the Mag Seven in 2025. As of the May 1 close, Meta has a total return of around -2% in 2025. Microsoft managed to get out of the red, with a total return of around 1% on the year.

The performance of these two stocks is particularly impressive, considering that all the other Mag 7 names are down over 10% in 2025.

So, what went well for Meta in this earnings cycle? What did Meta’s results tell markets about the early effects of tariffs on its business? And overall, how should investors view this stock going forward?

Meta’s Earnings Hit the Mark on All Fronts

Meta excelled in key areas, including revenue, adjusted earnings per share (EPS), and guidance. The company’s quarterly revenue grew by 16% to $42.3 billion, approximately $1 billion higher than Wall Street analysts forecasted. Adjusted EPS came in at $6.43 per share, around $1.20 higher than expected.

Lastly, revenue guidance for Q2 came in at a midpoint of $44 billion, implying growth of 13%. This was around $200 million higher than estimated. Important key performance indicators (KPIs) were also strong.

The company’s daily active people (DAP), which measures the number of users across its apps, grew by a solid 6%. This was an improvement over the 5% growth seen in both Q4 and Q3 of 2024.

The price paid for ads demonstrated 10% growth, and this figure has now remained about that threshold for four quarters straight. All this helped the company’s operating margin increase by 360 basis points a year ago to over 41%.

Meta Boosts AI CapEx, Tariff Impact Looks Siloed

Meta made a big announcement. It now expects much higher capital expenditure (CapEx). The company raised the midpoint of its 2025 CapEx guidance by nearly 9% to $68 billion. Most of this will go toward AI infrastructure. There are two ways one can look at this. First, the company is doubling down on its AI strategy, which has yielded strong results for its advertising business.

The company’s AI-based recommendations drive higher app engagement, which evidences this. The company announced that over the past six months, time spent on Facebook increased by 7%, on Instagram by 6%, and on Threads by 30%, driven by these recommendations. 

The company also said that in Q1, ad conversions on Reels were up 5%, and 30% more advertisers used its creative AI ad-making tools. All this makes advertising on Meta’s apps more valuable.

On the other hand, the company notes that part of the increased spending guidance is due to higher costs of AI infrastructure. This could mean that future investment in AI will result in a lower return on investment. The company said this higher cost mainly stems from suppliers with global supply chains. This implies that tariffs are affecting the business in this respect.

On the demand side, the company specifically called out lower ad spending in the United States from Asian e-commerce companies. This is largely due to the ending of the de minimis rule, which is set to become effective on May 2. This negatively affects companies like Temu and Shein. Meta did note that because it is a global company, some of this spending is being redirected to its other markets. However, this did not fully offset the decline in spending.

Overall, tariffs are having an impact on Meta, but not a massive one at this point.

Meta Remains in the Driver’s Seat For Now

There was almost nothing to complain about regarding Meta’s latest earnings. The effect of tariffs appears limited at this point. However, investors will need to continue monitoring this. Trump’s 90-day reciprocal tariff pause ends on Jul. 9, and broader effects on Meta’s demand could materialize in Q2 as this deadline draws closer.

Additionally, the massive 145% tariffs on China, which don't receive the exemption, didn’t go into effect until Apr. 9. This means that most of the effect on general ad demand from China likely won’t show up until Q2 earnings. Overall, Meta remains strongly positioned until further notice. After earnings, 19 analysts tracked by MarketBeat boosted their price targets.