09.03.2026 Consolidation Notice

After social media giant Meta Platforms, Inc. (ticker: META) released its Q1 results for its Fiscal Year (FY) 2026 on the 29th of April 2026, the stock dipped 10% despite its earnings per share (diluted) of $10.44 for the quarter beating the estimated consensus estimate of $6.65-$6.82.

Now, Meta – once known as “Facebook” – has some similarities in Google, whose Q1 2026 earnings were released on the same day: it has a preponderant revenue driver in advertising. Like Google’s Q1 2026, developments outside of its core business has a hand in line item performance.

Trend Analysis

At first blush, diluted earnings per share (EPS) performance seems to have been both transformative and strongly bullish in Q1 2026, especially relative to FY 2025:

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Source: Company Information; Leverage Shares analysis

If trends were to continue (with accounting for anything else) as-is, FY 2026 would close out with a massive 76% growth in diluted EPS relative to a relatively modest 12% growth in total revenue and an 8% growth in operating income.

“Accounting” precisely explains the divergence in performance between net income and operating income which, in Q1 2026, stands at nearly $4 billion. The company stated that it has recognized an $8.03 billion income tax benefit in Q1 2026 as a partial offset to the $15.93 billion non-cash tax charge recorded in Q3 2025 because of the One Big Beautiful Bill Act, which forced companies to capitalize R&D expenses differently and pay an additional tax surcharge. In early 2026, the Treasury Department issued Notice 2026-7, which clarified the treatment of these R&D costs under the Corporate Alternative Minimum Tax, thus allowing Meta to record a one-time tax benefit.

Now, recognizing an $8 billion benefit vis-a-vis a $4 billion gap between operating and net income is an important consideration on the overall performance of the company in GAAP terms. The company itself stated that, were it not for the tax benefit, diluted EPS for Q1 2026 would be 30% lower at $7.31.

Therefore, while R&D expenses are presently trending to grow 24% and 12% respectively relative to FY 2025, total revenue and diluted EPS are trending at a growth of 12% and 24% respectively. While taking into account, that the average price per ad increased by 12% YoY, the volume of ads sold is currently trending flat.

This means that operational efficiency would have to drive EPS growth. Trends in operating income suggests an 8% growth for FY 2026 versus a 12% growth in revenue. This implies that the trend for EPS growth is going to be challenging.

During the earnings call, CEO Mark Zuckerberg highlighted the fact that Meta presently is among the biggest investors in the Virtual Reality (VR) space across the industry, which partnerships with both Ray-Ban and Oakley have been instrumental in bringing to the market.

However, as the company’s financial statements indicate, “Reality Labs” – which represents the Metaverse/VR segment – has seen no substantial uptick in revenue share since FY 2023:

Source: Company Information; Leverage Shares analysis

The company remains massively dependent on advertising – much more so than Google.

The AI Conversation That’s Missing

In the previous earnings call, CFO Susan Li highlighted how AI-driven improvements in the recommendation models that deliver ads to social media users have led to quantifiable improvements in ad sales and advertiser experience. This quantification is missing and likely a factor in the immediate performance in the stock immediately following the earnings release.

Instead, CFO Li highlighted that Muse Spark – a family of models marking the first release from Meta’s Superintelligence Labs – is being integrated into Facebook, Instagram and ads to improve the company’s recommendation systems and core business. As the recommendation systems operate at a massive scale, the integration will be done “over time”.

A core difference in how capital expenditure in computing infrastructure by Google and Meta lies in usage: while Google can effectively “rent” out infrastructure to enterprises for their AI-relevant work, Meta leases infrastructure for the AI-relevant work it does for the benefits of users and advertisers on its app network.

The company’s aiming to roll out more than 1 gigawatt of custom silicon developed with Broadcom, alongside a significant amount of AMD chips to complement the new NVIDIA systems that are being rolled out. This is somewhat of a mixed signal: AMD chips are cheaper than Nvidia’s, so this could be argued as a net reduction in future outlays. However, custom silicon – while potentially more suited for the AI models being developed in-house – could be more expensive in the short run. The navigation of cost efficiencies is quite interesting but more or less left unexplored in detail during the earnings call.

While being mindful on the need for efficiency in its datacenter investments, Meta has upped its 2026 capital expenditure forecast from the earlier $115-135 billion range to the $125-145 billion range. Most of this, as per CEO Zuckerberg, is due to higher component costs – particularly memory, which is an industry-wide issue. To a lesser extent, this revision – states the release – is for additional datacenter costs in the future.

The messaging here is somewhat vague: the company is simultaneously saying that AI is going to be more relevant in the future while being somewhat silent on whether there will be a sustained increase in the future. This is a minor point against the company in terms of investor signalling, but significant given the ongoing hyper-fixation on AI spending and ROI prevalent in the market.

In Conclusion

Being able to sell more expensive ads while ad volume stays flat is no mean feat. However, the fact remains that the company is acutely more dependent on consumer spending than Google – which has an enterprise monetization channel that Meta lacks.

Given overall inflationary trends – not least created by the conflict of the Middle East – market sentiment is more bearish on the sustainability of EPS growth in Meta’s case. Another factor working against the company is that higher input (material) costs are being implied on the production of the chips that Meta consumes as a result of interrupted flows from the Middle East to Eastern economies wherein the chips are produced.

All in all, there are ample grounds to suggest that another 5-7% reduction in share price over the next 2-3 weeks is quite likely, unless tensions end quickly and resolutely. However, it bears remembering that supply flow interruptions have a long tail: it could be several quarters before prices stabilize, inflationary effects recede and a brighter consumer spending outlook can be implied to the company’s benefit.

Professional investors in Europe might consider the +3x Long Facebook ETP (FB3) and the -3x Short Facebook ETP (FB3S) during bullish and bearish trends in Meta’s price. To potentially capitalize on major tech stocks seemingly driving the market currently, the 5x Long Magnificent 7 ETP (MAG7) and the -3x Short Magnificent 7 ETP (MAGS) are at hand.

Furthermore, the Meta Options ETP (METY) aims to generate monthly income for investors by directly investing in the respective companies’ shares and selling put options on them. Also available is the Magnificent 7 Options ETP (MAGO), which invests in each Magnificent 7 constituent’s respective Options ETP in an equally-weighted manner.

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