4Q25 results beat; AI continues to drive adbusiness growth

4Q25resultsbeat; AI continues to drive adbusiness growth Target PriceUS$880.00Up/Downside31.6%Current PriceUS$668.73 Metaannounced 4Q25 results:total revenue increased by 24%YoY toUS$59.9bn and net income grew by 9% YoYto US$22.8bn, 3% and 8% aheadof Bloomberg consensus estimates, as AI continues to drive solid adrevenuegrowth.Managementexpectedthe strong momentum to sustain and guidedtotal revenue to increase by 26-34% YoY to US$53.5-56.5bn in 1Q26, which isalso ahead of consensus estimate (US$51.3bn). ManagementguidedFY26total expenses to be US$162-169bn (+38-44% YoY) mainly due tothe increaseininfra costs and employee compensation, but stillexpectedpositiveoperatingincomegrowth in FY26. This guidance, based on our estimate, implies totalrevenue growthcouldbe above 22% YoY in FY26 (vs. consensus of +18%YoY). Overall, we lift our FY26-27E total revenue forecastsby 6-9% in view ofthe strong AI-driven performance gains of the ad business, butmaintainourFY26earningsforecast largelyunchangedon the opexgrowth. We maintain ourtargetprice unchanged at US$880.0 based on 30x FY26E PE. Maintain BUY. Internet Saiyi HE, CFA(852) 39161739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Strong ad business momentum.Family of Apps(FoA)ad revenuegrewby24%YoY to US$58.1bn in 4Q25,driven by online commerce,professional services andtechnologyverticals. Ad impressions deliveredsolidYoYgrowth of 18% in 4Q25, mainly due to engagement growth andad loadoptimization. Average price per ad increased by 6% YoY in 4Q25as AI improved ad performance.FoA other revenuegrewby54% YoY toUS$801mn in4Q25,withWhatsApp paid messagingsurpassingtheannualrun rateofUS$2bn.Looking ahead, managementguidestotalrevenuetogrow by26-34% YoYin1Q26 (incl. 4% currency tailwinds),but expectsFY26 total revenuegrowthto be below 1Q26 level due to lesscurrencytailwinds, high-base effect, andintroduction of the revised ads offering in theEU. Stock Data AI continues to drive businessgrowth.AI drove adperformanceonseveralfronts andmanagementexpectsthe AI gains to continue in FY26:1) Engagement: total watch time of Instagram Reels and Facebook videosgrew by over 30% YoY andat double-digit figuresYoY in the US, thanks totheoptimization of recommendation system.2)Monetization: the GEMmodeland sequence learningarchitecture improvementsin 4Q25 drove3.5%increasein ad clicks on Facebook andover1% gain in conversionson Instagram.3) Ad products: the company continues to introduce andoptimize ad products to improveefficiencyof advertisers. The combinedrevenue run rate of video generation toolssurpassed US$10bnin 4Q25. Update on opex and capital allocation.For FY26, Meta guidedtotalexpenses to be US$162-169bn (+38-44% YoY), and capex to be US$115-135bn (+59-87% YoY),primarily due to the step-up of AI investment.Managementnoted that the compute demand will continue to outpacesupply throughthemajority of 2026 until the company’s own facilities comeonline in the later part of the year. Despite the AIinvestment,managementstill expectedpositive YoYoperating incomegrowth in FY26, whichmayease investor concern to some extent, in our view. Source: FactSet Business forecasts update andvaluation Valuation We value Meta at US$880.0per share based on30x 2026E P/E. Our target PE multiple isa premium to the sector average (19x), reflecting Meta’s strong leadership in global socialmedia space and capability todrive long-term earnings growth. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to thesecurities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission)(1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issueof this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potentialreturn of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected t