What The Market Missed In Meta’s Q4, Costs Are Running Hot

Meta Q4 Revenue Beat, Spending Beat It Too

Meta was up roughly 10%, pushing the stock to about US$738 per share. The company’s core business remains an advertising cash machine. In FY25, advertising revenue was US$196.2 billion out of total revenue of roughly US$201 billion, about 98% of the group.

The segment under the microscope is the “Other” line, which is largely Reality Labs. Despite the scale of Meta’s AI and metaverse spend, this segment is still only generating around US$2.2 billion per year, while Reality Labs posted an operating loss of US$19.2 billion. In contrast, the Family of Apps produced approximately US$102 billion in operating income. In practical terms, the core platform is funding the losses of Reality Labs.

That is not automatically a negative. The key investor question is whether Reality Labs is ultimately value accretive or value destructive. Given the magnitude of ongoing investment and the lack of near-term profitability, the market has arguably been more forgiving than expected, even as Meta’s cash flows have trended down over time.

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The Hidden Miss Was Operating Leverage

For these future cash flows to be justified in today’s share price, the market is effectively signalling confidence that Meta can convert its current CapEx and investment cycle into meaningful profits over time.

We understand the logic, and there is a clear case that Meta has the scale, talent, and distribution to monetise AI. But we do not think this plays out as a simple, straight-line projection. The competitive landscape is intensifying, and the cost of staying at the frontier is rising quickly.

When I compare Meta with other Mag 7 names, it currently stands out as one of the biggest cash burners in AI and adjacent bets, with less visible payback so far. That is not to say the strategy will fail, but the gap between spending and proven returns remains wide today, especially when benchmarked against peers like Google, where AI monetisation pathways look more established.

For investors, the key question to keep coming back to is simple: what hard evidence do we get over the next 12 to 24 months that this level of investment is translating into durable earnings power, not just bigger ambition.

The investor’s takeaway for META

The primary concern for us, and one the market seemed to largely look past, is the pace of cost growth. Expenses were up roughly 40% while revenue grew about 24%. That gap matters.

It tells investors the prior investment cycle is no longer only pressuring the cash flow statement and free cash flow. It is starting to flow through into profitability as well. Data centre buildouts, energy costs, and engineering expansion all come with a real and ongoing cost base, and that cost base is rising quickly.

A number of analyst forecasts still assume margins improve meaningfully this year. So far, we have not seen clear evidence of that inflection. What we have seen instead is continued acceleration in spending and operating expenses.

On CapEx specifically, Meta spent about US$72 billion this year, including roughly US$69 billion in additions to property, plant and equipment. Given the scale of the infrastructure buildout, we expect this level of investment to remain elevated and relatively steady rather than quickly normalising.

To be clear, Meta is a high quality business and still an exceptional cash generator through its core advertising platform. Our hesitation is purely about price and discipline. Among the Mag 7, Meta looks like one of the more aggressive capital spenders today without a proven near term return on that incremental investment.

Because of that, we would personally only look to build a position after a meaningful pullback, when the market is pricing in more conservative assumptions and management has either demonstrated operating leverage or signalled a clear shift toward spend discipline.