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Abstract:
This video provides an analysis of the Q1 2025 earnings reports for Meta and Microsoft, both of which saw their stock prices rise in after-hours trading following strong results.
Meta reported significant year-over-year growth, with revenue up 16%, operating income up 27%, and net income up 35%, indicating margin expansion. Key operational metrics like daily active people (+6%) and average price per ad (+10%) were positive, though ad impression growth decelerated (+5%). Operating cash flow grew 25%, but free cash flow declined due to a doubling of capital expenditures. Meta increased its full-year 2025 capex guidance, potentially weighing on the stock. Valuation analysis using Price/Operating Cash Flow (~14.7) suggests the stock may be undervalued compared to its historical average (~16.7).
Microsoft also delivered strong Q1 results, with revenue up 13%, operating income up 16%, and net income up 18%. Microsoft Cloud revenue grew 20%, driven by Azure growth of 33%. Like Meta, Microsoft saw a significant increase in capital expenditures (+55% YoY) and its Cloud revenue growth showed signs of quarter-over-quarter deceleration. Its Price/Operating Cash Flow multiple (~22.4) is close to its historical average (~23.6), leading the presenter to view it as less undervalued than peers like Meta or Amazon.
The video concludes with speculation about Amazon's upcoming earnings report, suggesting that potential pre-ordering of inventory ahead of tariffs might lead to lower Q2 profit guidance, which could present a buying opportunity if the stock dips.
Meta & Microsoft Q1 Earnings Review + Amazon Preview
0:00:02 Market Reaction: Meta and Microsoft stocks are both up ~6% in after-hours trading following positive earnings reports.
0:00:45 Meta Q1 Financials: Revenue grew 16% YoY, operating income +27%, operating margin expanded 3% (to 41%), net income +35%, EPS +37%. Takeaway: Strong growth with expanding profitability.
0:01:15 Meta Q1 Operations: Family Daily Active People reached 3.43B (+6% YoY), Ad Impressions +5%, Average Price Per Ad +10%. Overall revenue was $42.3B (+16%).
0:01:41 Meta Cash Flow: Operating Cash Flow (OCF) was $24.03B (+25% YoY), but Free Cash Flow (FCF) declined to $10.33B due to significantly higher capital expenditures (Capex).
0:02:02 Meta Q2 Outlook: Expects Q2 revenue between $42.5B - $45.5B (midpoint implies ~13% YoY growth).
0:02:22 Meta Capex Guidance: Increased full-year 2025 Capex guidance to $64B-$72B (up from $60B-$65B). Takeaway: Higher spending may be a factor limiting stock gains.
0:03:13 Meta Capex Detail: Q1 Capex more than doubled YoY to ~$13B, explaining the FCF drop. Presenter suggests focusing on OCF during high capex cycles.
0:04:34 Meta Ad Trends: While revenue grew across geographies, Ad Impression growth decelerated (+5% YoY vs +20% prior year), acting as a headwind.
0:05:17 Meta Ad Pricing: Average Price Per Ad growth accelerated (+10% YoY vs +6% prior year), providing a positive offset.
0:05:47 Meta Valuation (OCF): TTM OCF is $95.1B. Current Price/OCF is ~14.7.
0:06:04 Meta Historical Valuation: The historical average P/OCF since 2017 is ~16.7. Takeaway: Meta currently trades below its historical average, suggesting potential undervaluation.
0:06:34 Meta DCF Analysis: A basic DCF assuming 10% OCF growth, 3% buybacks, and a stable P/OCF multiple suggests a potential 14% CAGR. Presenter believes 10%+ growth is achievable.
0:08:11 Microsoft Q1 Financials: Revenue $70.1B (+13% YoY), Operating Income $32B (+16%), Net Income $25.8B (+18%), EPS $3.46 (+18%). Takeaway: Strong double-digit growth across key metrics, also showing margin expansion.
0:08:39 Microsoft Cloud: Microsoft Cloud revenue hit $42.4B, up 20% YoY.
0:09:09 Microsoft Segment Growth: Broad-based growth including Microsoft 365 Commercial (+11%), Intelligent Cloud (+21%), and Azure (+33%).
0:10:31 Microsoft Cash Flow: OCF was $37B (+15.6% YoY). Stock-based compensation is relatively low (~8% of OCF).
0:11:05 Microsoft Capex: Q1 Capex was ~$16.7B, up ~55% YoY. Takeaway: Significant Capex increase trend also seen at Microsoft.
0:12:01 Microsoft Cloud QoQ Growth: Quarter-over-quarter growth for cloud revenue has decelerated, now at 3.7%.
0:12:32 Microsoft Valuation (OCF): TTM OCF is $130.7B. Current Price/OCF is ~22.4.
0:12:53 Microsoft Historical Valuation: The historical average P/OCF since 2017 is ~23.6. Takeaway: Microsoft trades slightly below its average but isn't as discounted as Meta, Google, or Amazon. Presenter sees it closer to fair value.
0:14:18 Reason for Amazon Speculation: Potential impact of pre-ordering inventory ahead of tariffs, which could temporarily hit reported profits (operating income, net income, OCF) in Q2.
0:14:58 Potential Amazon Market Reaction: A lowered profit guidance could cause a short-term negative stock reaction.
0:15:07 Presenter's Amazon Strategy: Views a potential dip due to lowered guidance as a buying opportunity for a temporary issue.