META 0.00%↑ reported Q1 ‘26 earnings after the bell yesterday and the market did not like the results. The stock dropped ~9-10% off of the capex guidance and the reported DAP metrics. Here is a look at the earnings numbers:
For this analysis, I used an un-levered beta of 1.23 (internet application and software industry) which was re-levered to 1.18 using the Hamada equation. In addition, I also used an ERP of 4.5% (for US equities), an effective tax rate of 14.5% based on CFO commentary, and a risk free rate of 3.76%.
Please refer to Stock Analysis for all the data I used in this analysis.
I used the long dated bond rate for META 0.00%↑ which is 4.875% for the pre-tax cost of debt as of the writing of this analysis. Now with those parameters out of the way, here is the company guidance.
They are guiding for a second quarter revenue of $59.5 billion (midpoint) which is only slightly above analyst expectations and largely inline. Total expenses remain unchanged which is telling because that indicates that the increase in capex is largely due to component pricing increases rather than spending more to acquire more compute.
Even so, $125-$145 billion is a large amount of capex for internal use AI that is not directly sold to customers and consumers. For that reason, the stock is getting hammered post earnings. In addition, looking at the DAP (daily active people) metric, which is arguably the most important metric for META 0.00%↑ as they require people to view and click on ads which fund their advertising business, it’s clear that there were extenuating circumstances.
