Meta’s Expenditure: A Delicate Imbalance

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The current valuation of Meta Platforms (META +0.31%), as of this particular juncture in the relentless march of time, reveals a curious discrepancy. While the broader S&P 500 has enjoyed a modest ascent – a mere ripple in the grand ocean of capital – Meta has, shall we say, lingered – a moth drawn to a dimmer bulb. A decline of approximately 3% in 2026, juxtaposed with the S&P’s near 1% gain, is not a catastrophic plummet, naturally, but a subtle deceleration, a fading echo of former exuberance. One notes, with a historian’s detached amusement, that 2025 offered a similarly muted performance—a 13% return, overshadowed by the S&P’s 18%. The numbers, like well-behaved insects, present themselves for our scrutiny, but offer little in the way of explanation without a closer look.

On the surface, the situation appears almost paradoxical. Meta concluded 2025 with a fourth-quarter revenue of $59.9 billion – a 24% year-over-year increase, a respectable sum, certainly. Yet, the market seems to regard this financial blossoming with a peculiar indifference, as if a garden overflowing with blooms were merely…adequate. The emphasis, it seems, has shifted from the tangible fruits of the business to the less visible, and considerably more expensive, ambitions lurking beneath the surface. A peculiar focus, wouldn’t you agree? As if anticipating the cost of the vase before admiring the roses.

The Compounding of Certainties

Let us begin with the demonstrable facts. Meta’s full-year revenue for 2025 reached $201.0 billion, a 22% increase. The fourth quarter alone contributed $59.9 billion, a 24% ascent. The engine, as ever, is advertising. Ad impressions across Meta’s Family of Apps rose by 18% year-over-year in the fourth quarter, accompanied by a 6% increase in the average price per ad. And the sheer scale of the audience remains formidable. An average of 3.58 billion daily active users in December, a 7% increase – a digital coliseum packed with attentive spectators. The advertisers, predictably, adore it. A captive audience, and a remarkably engaged one at that. A most profitable arrangement, wouldn’t you say? A slow drip of revenue from billions of pockets.

The profitability, too, is noteworthy. Operating income from Meta’s Family of Apps reached $30.8 billion in the fourth quarter – enough to comfortably offset the considerable losses emanating from Reality Labs – a segment dedicated to virtual reality, augmented reality, and the attendant paraphernalia. A $6.0 billion operating loss, to be precise. A curious investment, some might say, but one that speaks to a long-term vision, or perhaps, a gambler’s impulse. Meta possesses the cash flow to indulge these ambitions. Free cash flow reached $43.6 billion in 2025, despite capital expenditures of $72.2 billion. And a substantial portion – $31.6 billion – was returned to shareholders through share repurchases and dividends. A generous gesture, certainly, but one that hints at a desire to appease a restless market.

Thus, the core business appears to be functioning with admirable efficiency. A well-oiled machine, churning out profits with predictable regularity. A comforting sight, in an age of disruption and uncertainty.

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The Ramping of Expenditure

However, the tranquility is deceptive. Meta is embarking on a period of significantly increased capital expenditure. A strategic shift, perhaps, but one that carries considerable risk. In the fourth quarter, costs and expenses rose by 40% year-over-year – outpacing revenue growth. The operating margin suffered accordingly, declining from 48% to 41% – a 700-basis-point decrease. A noticeable dent, wouldn’t you agree? A subtle erosion of profitability.

The 2026 outlook is even more demanding. Meta anticipates capital expenditures in the range of $115 billion to $135 billion – a substantial increase from the $72.2 billion spent in 2025. A 60% to 90% step-up, to be precise. Total expenses are projected to reach $162 billion to $169 billion, compared to $117.7 billion in 2025. A veritable deluge of spending. This, then, is the crux of the matter. The market is attempting to assess whether this ambitious undertaking is a prudent investment or a reckless gamble. A delicate balancing act, wouldn’t you say?

To Meta’s credit, management assures investors that 2026 operating income will exceed that of 2025, despite the increased expenditure. However, this also suggests that significant growth in profitability is not anticipated. A modest expectation, perhaps, but a realistic one. Still, it is impressive that Meta can maintain operating income growth during a period of such substantial expense growth. A testament to the efficiency of the core business, or a clever accounting trick? One wonders.

Ultimately, I suspect that Meta stock represents a reasonable purchase after this period of underperformance. The core advertising business remains robust, and the company is guiding for even faster growth in the first quarter. The valuation, too, is reasonable, considering the strong business momentum. Shares are currently trading at 27 times earnings. However, I would advise a cautious approach. Meta remains heavily reliant on advertising demand, which can fluctuate rapidly in response to economic conditions. And once a company commits to spending $115 billion to $135 billion annually, the stakes are raised considerably. If the payoff is delayed, or fails to materialize, investors may lose faith in Meta’s capital allocation practices. A cautionary tale, wouldn’t you say? A reminder that even the most promising ventures are subject to the vagaries of fate.

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2026-02-25 06:32