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Bolstered by its new GenAI tools and a relatively healthy advertising spending climate, Meta Platforms (META) delivered another strong earnings report, blowing past Q3 EPS expectations as revenue grew by nearly 19% to $40.6 bln. Like Alphabet (GOOG), which reported upside Q3 results on Tuesday night, META's substantial investments in AI are paying off, as illustrated by increases in time spent across its apps and higher ad prices. However, with shares trading near all-time highs and up by nearly 70% on a year-to-date basis, META had little room for error. 

While we believe that the positives outweighed the negatives, there are a couple issues that are weighing on the stock.

• META's aggressive spending and investments on ventures outside of its core advertising business has long been under the spotlight. Over the past several quarters, those concerns had lessened as META's revenue growth reaccelerated, driving its profits higher. Now, revenue growth is slowing again with the midpoint of META's inline Q4 revenue guidance of $45-$48 bln equating to yr/yr growth of 16%, compared to 19% this quarter, 22% in Q2, and 27% in Q1.
• As META's revenue growth slows, the company intends to press even harder on the accelerator in terms of spending, raising the low end of its FY24 capex guidance range. Specifically, the company now expects capex to total $38-$40 bln this year, up from its prior forecast of $37-$40 bln. Furthermore, CEO Mark Zuckerberg reiterated that capex is set to grow significantly in 2025 due to investments in AI products, Llama 4 (the next version of its large language model), and augmented reality products such as Orion glasses.
• META also fell just short of expectations on Family Daily Active People (DAP), which measures the number of users who signed into Facebook, Instagram, WhatsApp, Threads, or Messenger during the quarter. DAP grew by 5% yr/yr to 3.29 bln, representing a slight decrease from last quarter's 7% increase. 
• The advertising business, which accounts for about 98% of META's total revenue, still had a solid quarter overall and new AI tools are playing a major role in that strength. Advertisers are seeing higher ROIs, better targeted ads, and increased conversion rates as AI-driven recommendations lead to more time spent across META's apps. As a result, average price per ad increased by 11% and ad impressions grew by 7% yr/yr.
• Although capex continues to rise at a rapid rate, META is aiming to restrain operating expense growth. In Q3, opex was up by 13%, which trailed revenue growth of 19%, enabling operating margin to expand by 300 bps yr/yr to 43% and EPS to grow by 37% yr/yr to $6.03.

Overall, this was another solid performance for META as the company attempts to balance earnings growth with an expensive growth strategy that's centered on AI and virtual reality. With META's top-line growth slowing, there's a little less tolerability for those aggressive spending plans, but META remains one of the best-positioned companies to capitalize on the emergence of AI.