Meta Platforms Earnings Call: Ads Surge, Costs Soar

Meta Platforms, Inc. ((META)) has held its Q4 earnings call. Read on for the main highlights of the call.

Meta Platforms’ Earnings Call Balances Surging Ad Growth With Heavy AI Spend

Meta Platforms’ latest earnings call struck an overall positive tone, with management emphasizing accelerating ad revenue growth, stronger engagement across its apps, and clear traction from AI-driven products. Revenue and ad metrics surprised to the upside, while free cash flow and balance sheet strength give the company room to fund a major infrastructure build-out. Still, executives were candid about rising expenses, significant capital expenditures for AI capacity, ongoing Reality Labs losses, and mounting regulatory risks, all of which investors will need to weigh against the robust operating momentum in the core advertising franchise.

Strong Top-Line Growth Underpins Investor Confidence

Meta highlighted a powerful rebound in its core business: Q4 total family of apps revenue reached $58.9 billion, up 25% year over year, while ad revenue from the family of apps came in at $58.1 billion, up 24% (23% in constant currency). This growth underscores the resilience of Meta’s advertising engine even as the broader digital ad market remains competitive. The combination of higher volumes, better ad performance, and renewed advertiser demand is driving a broad-based top-line expansion that provides the financial foundation for the company’s ambitious AI and infrastructure investments.

Massive Daily User Base Supports Long-Term Monetization

Management underscored the scale advantage of Meta’s ecosystem, with an estimated 3.5 billion people using at least one of the company’s apps every day in December. This enormous daily active user base reinforces Meta’s status as a central platform for both social interaction and digital advertising. The breadth of the audience across Facebook, Instagram, WhatsApp, and Messenger creates a durable monetization runway, as even modest improvements in ad load, pricing, or new services can translate into large revenue gains at this scale.

Ad Demand And Monetization Metrics Move Higher

The call detailed a strong recovery in ad monetization. Ad impressions rose 18% year over year in Q4, while the average price per ad increased 6%. This combination of volume and pricing growth is particularly notable, as Meta is managing to improve yields without sacrificing engagement. Management attributed the gains to better ad performance and higher advertiser demand, suggesting that marketers are increasingly confident in the platform’s ability to drive measurable outcomes. For investors, this dual improvement in impressions and pricing is a key indicator of health in the core business.

Product And Recommendation Engines Fuel Engagement

Meta credited recent product and recommendation improvements for boosting engagement across its apps. Q4 product optimizations generated a 7% lift in Facebook organic feed and video views, while the platform surfaced 25% more same-day Reels quarter over quarter, pointing to a more dynamic and timely content experience. On Instagram, original content grew to 75% of recommendations in the U.S., a rise of 10 percentage points, which is helping differentiate the feed and keep users engaged. These changes reflect the growing role of AI-driven recommendations in shaping user activity and underpin the company’s ability to serve more and better-targeted ads.

Ad Quality And Conversion Rates Benefit From AI Models

Meta highlighted concrete improvements in ad quality and performance driven by consolidated and more advanced AI models. On Facebook, consolidating models across different surfaces led to a 12% increase in ad quality, while the deployment of a new runtime model across Instagram feed, stories, and Reels delivered a 3% lift in conversion rates in Q4. These seemingly small percentage gains can translate into substantial incremental revenue at Meta’s scale and make the platform more attractive to performance-focused advertisers who are closely tracking return on ad spend.

AI Creation Tools And Meta AI Gain Traction

The company showcased meaningful traction in AI-powered products and creator tools. Daily active users generating media with Meta AI tripled year over year in Q4, showing early but rapid adoption of generative capabilities. Nearly 10% of Reels viewed daily are now created in the Edits app, almost triple the prior quarter, underscoring the impact of streamlined editing tools on content supply. AI dubbing now supports nine languages, with hundreds of millions of people watching AI-translated videos daily. Together, these tools enhance creator productivity, broaden global reach, and deepen engagement—laying the groundwork for future monetization of AI capabilities.

Messaging And Business Solutions Build A Second Revenue Engine

Beyond the main ad feed, Meta is steadily building a second growth pillar in messaging and business solutions. Paid messaging on WhatsApp surpassed a $2 billion annual run rate in Q4, highlighting the growing appetite for conversational commerce and customer service at scale. Click-to-message ads in the U.S. grew more than 50% year over year, indicating strong advertiser interest in formats that connect directly to chats. Early deployments of business-focused AIs have already reached over 1 million weekly conversations in test markets, suggesting a sizable opportunity to layer AI-driven automation and services on top of WhatsApp and other messaging platforms.

Cash Generation And Balance Sheet Support Heavy Investment

The quarter’s financials underscore Meta’s ability to self-fund its transformation. Free cash flow of $14.1 billion in Q4, along with $81.6 billion in cash and marketable securities versus $58.7 billion in debt, gives the company significant flexibility to invest aggressively. Management emphasized that this liquidity buffer will be used to support large-scale AI infrastructure and compute expansion. While Meta remains open to modest, cost-efficient external financing that could move it into a net-debt position, the current balance sheet and cash generation provide ample capacity to absorb the upcoming wave of capital spending.

Reality Labs: Revenue Pressure And Persistent Losses

Reality Labs remains a drag on the financial profile. Q4 revenue for the segment was $955 million, down 12% year over year as the business lapped the introduction of Quest 3. Management signaled that 2025 will mark peak operating losses for Reality Labs and that losses in 2026 are expected to remain similar to 2025 levels. While Meta continues to frame virtual and mixed reality as a long-term bet, the segment is still far from profitability, and investors will need to tolerate prolonged losses as the company attempts to build out its metaverse and spatial computing ambitions.

Expenses And CapEx Set For A Step-Change Higher

The company laid out a sharp step-up in its cost base as it scales AI and infrastructure. Full-year 2026 total expenses are guided to a hefty $162 billion to $169 billion, driven mainly by infrastructure and compensation. Capital expenditures for 2026 are projected at $115 billion to $135 billion, including finance lease principal—representing a material acceleration compared with recent years. Management framed these investments as necessary to build out compute capacity, data centers, and AI models that can power future growth, but the magnitude of spending will be closely watched by investors assessing returns on capital.

Capacity Constraints Drive Infrastructure Push

Meta acknowledged that it remains capacity constrained for compute, underscoring the urgency behind its infrastructure push. Expense growth in this area is being driven by higher depreciation from new data center and AI hardware, increased cloud spending, and other operating costs tied to scaling AI workloads. The company is pursuing large-scale investments and partnerships to expand capacity and reduce bottlenecks. While this spending is pressuring near-term margins, management argues that alleviating compute constraints is critical to sustaining product innovation, improving ad performance, and unlocking new AI-driven revenue streams.

Regulatory And Legal Headwinds Loom Large

The call flagged ongoing regulatory and legal risks in both the EU and U.S. Management pointed to continued scrutiny around youth safety and several trials scheduled this year, warning that outcomes could materially affect business practices and financial results. In Europe, the rollout of less-personalized ad options may weigh on monetization, adding another layer of uncertainty. These headwinds serve as a reminder that, despite strong operating performance, Meta’s earnings trajectory remains exposed to policy shifts and regulatory enforcement in key markets.

AI Monetization Timeline Remains Uncertain

While Meta is investing heavily in AI and its MetaCompute initiative, management stressed that many of these products are in early stages with limited near-term revenue contribution. The company is positioning AI capabilities as long-term growth drivers rather than immediate profit engines, and initial launches are expected to show the trajectory of adoption rather than significant short-term monetization. For investors, this means that the substantial AI-related capex and opex may precede meaningful incremental revenue, leaving a period where returns on these investments are still being proven out.

Revenue Guidance Highlights Uncertainty And FX Tailwinds

Meta’s Q1 2026 revenue guidance of $53.5 billion to $56.5 billion reflects continued growth but also acknowledges macro and execution uncertainty. The company expects foreign exchange to provide an approximate 4% tailwind to year-over-year revenue growth in the quarter, illustrating the sensitivity of results to currency movements. The relatively wide range suggests caution around ad demand trends, regulatory impacts, and the pace at which new products ramp. Nonetheless, the guidance implies that Meta anticipates maintaining a high level of revenue scale even as it navigates a complex environment.

Forward-Looking Outlook: Growth, Investment, And Margin Balance

Looking ahead to 2026, Meta projects total expenses between $162 billion and $169 billion and capital expenditures of $115 billion to $135 billion, underscoring the scale of its AI and infrastructure build-out. Despite this surge in spending, management expects 2026 operating income to be higher in absolute dollars than in 2025, and is guiding to a full-year tax rate of 13% to 16%. Reality Labs operating losses are expected to remain similar to 2025 levels, reinforcing the long-dated nature of that bet. The company plans to lean primarily on strong internal cash generation to fund its investments while remaining open to modest external financing if favorable, which could result in a positive net-debt position. With headcount at 78,800, up 6% year over year, Meta is clearly still in expansion mode but is signaling an intent to balance growth with profitability.

In closing, Meta’s earnings call painted a picture of a company firing on all cylinders in its core advertising and engagement metrics, while simultaneously embarking on one of the largest AI infrastructure build-outs in the market. Investors are being asked to accept substantial near-term spending, persistent Reality Labs losses, and heightened regulatory risk in exchange for sustained top-line growth and the promise of future AI-driven monetization. For now, strong ad performance, massive user scale, and robust cash generation tilt the story in Meta’s favor—but execution on AI, infrastructure returns, and regulatory navigation will determine whether this momentum can translate into durable, long-term shareholder value.