Meta Q1 2025 Preview: Slower Growth, Ad Struggles, CapEx Focus

After a strong rebound in 2024, Meta is set to report its Q1 2025 earnings this week. The market focus has shifted from "how fast can it grow?" to "how long can it last?" - as the company faces slowing core metrics, advertising headwinds, and heavy capital expenditures.

Operating margin is expected to drop sharply to 32.5% from 43.1% in Q4, reflecting rising costs and continued investment in AI and infrastructure.

Growth remains intact, but "slowdown" is the dominant theme, which raises the bar for the quality and sustainability of Meta's future expansion.

Meta's Family of Apps (FoA) continues to underpin its performance. The Q1 forecast was raised to over $20 billion in operating profit, mainly due to higher-than-expected ad revenue per user in the U.S. and Europe.

However, analysts point out that profit forecasts for the rest of 2025 remain flat, signaling cautious sentiment around advertising momentum.

Goldman Sachs warns, "While FoA's near-term outlook is optimistic, its growing dependence on ad pricing and AI-driven targeting means any slowdown in user growth could undermine long-term ad value."

Advertising still accounts for 96% of Meta's revenue, but its growth forecast has declined from 20.9% to 13.3% QoQ. A major headwind: escalating U.S.-China trade tensions.

The Trump campaign has pushed for new tariffs and repealing the "de minimis" rule, prompting major Chinese e-commerce players like Temu and Shein to slash their ad budgets on Meta platforms. MoffettNathanson estimates that if this trend persists, Meta could lose up to $7 billion in ad revenue in 2025.

Also, Meta earned $18.35 billion from Chinese advertisers in 2024—over 11% of total revenue, second only to the U.S. There are already signs of reduced ad spending: Temu's ranking on the App Store has declined, suggesting a shift in user acquisition strategy.

If the U.S. also falls into a recession, the combined impact of a trade war and economic downturn could slash Meta's ad revenue by as much as $23 billion and cut profits by 25%, posing a serious threat to the stock.

Google's latest earnings call might offer some clues about ads. The company said it's "too early to tell"how things will play out, but it admitted that changes to import rules could slow down ad spending from Asia-Pacific retailers.

Even if the economy gets tougher, Googleis still planningto spend $75 billion this year.But they also said they'llfocus more on being efficient and getting the most out of that spending to stay strong during uncertain times.

Meta plans to spend between $60 and $65 billion on capital expenditures in 2025—well above the $50.7 billion the market expected. The bulk will go toward AI servers, data centers, and ad infrastructure.

While this positions Meta to deepen its AI moat, it raises eyebrows given current ad weakness and earnings pressure.

Bernstein commented, "Meta faces a tough choice: cut spending to protect margins, or continue investing heavily and risk near-term financial strain. So far, the market hasn't shown much patience for the latter."

Meta's stock has fallen more than 35% since its peak in February 2025, and it's down 28.4% just since the last earnings report in January.Thisshows that investors are worried about short-term problems like slower profit growth.

But if you look at the bigger picture, Meta's stock has been up over 40% since the start of 2024. Also, its valuation has come down—its price-to-earnings (P/E) ratio for 2026 has dropped from 25x to 17x, which could make the stock more attractive to long-term investors.

Research firm MoffettNathanson still recommends buying the stock but lowered their target price from $710 to $525, mainly because of short-term worries about ad revenue and profits.