Meta Platforms META released its fourth-quarter earnings report on Jan. 28. Here’s Morningstar’s take on Meta’s earnings and stock.

Key Morningstar Metrics for Meta Platforms

• Fair Value Estimate: USD 850.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Meta Platforms’ Q4 Earnings

Meta reported strong fourth-quarter earnings, with sales growing 24% to USD 60 billion. Operating margins contracted 700 basis points to 41% as AI-related costs continue to mount. The firm’s 2026 guidance calls for USD 125 billion in capital expenditures and USD 162 billion in operating expenses.

Why it matters: Meta’s ad business continues to perform at full capacity, with the firm’s investments in artificial intelligence continuing to drive metrics such as engagement, ad efficacy, and content recommendation.

• Engagement metrics, including time spent on Instagram and Facebook, remain strong, with video engagement particularly strong. As users spend more time on its platform, Meta can show them more ads, driving ad impressions up 18% for the quarter.
• We were similarly impressed by Meta leveraging its AI investments to drive growth in ad clicks (up 3.5% for Facebook) and conversions (1% increase for Instagram). While marginal, these improvements can unlock substantial topline dollars considering Meta’s scale.

The bottom line: We maintain our USD 850 fair value estimate for wide-moat Meta, with the firm’s outperformance on sales offset by its 2026 capital and operating expenses guidance coming in ahead of our estimates. Despite shares being up, we continue to view them as undervalued.

• We think that as the year continues, investors will align with our bullish view on Meta as more datapoints regarding the impact of the firm’s AI investments on its core ads business come to the fore.

Coming up: Meta expects sales for the first quarter to grow a whopping 30%, driven primarily by a healthy demand for its ad products. We expect this strength to continue into the remainder of the year, and model 2026 sales growth at 25%.

• We expect the launch of Meta’s latest large language model in the coming months, with the LLM likely to be competitive with frontier labs such as Google, OpenAI, and Anthropic.

Fair Value Estimate for Meta Platforms

With its 4-star rating, we believe Meta’s stock is moderately undervalued compared with our long-term fair value estimate of USD 850 per share, which implies a 2026 adjusted price/earnings multiple of 30 times and an enterprise value/adjusted EBITDA multiple of 14 times.

We forecast Meta’s sales growing at a 18% compound annual growth rate for the next five years, spearheaded primarily by an increase in average revenue per user, with user growth also chipping in. Drilling deeper, we believe Meta has a strong monetization opportunity ahead of it in Asia and the rest of the world. While we expect advertising sales from North America and Europe to grow steadily, we believe increasingly affluent and growing middle classes in Asia, Africa, and the Middle East will allow Meta to improve its ad monetization in those regions, lifting its overall top line.

Read more about Meta Platforms’ fair value estimate.

Economic Moat Rating

We believe Meta merits a wide economic moat due to the firm’s intangible assets and the potent network effect around its Family of Apps business. While the firm’s Reality Labs segment continues to hemorrhage cash, we believe Meta’s Family of Apps, or FoA, business’ strong competitive advantages will likely allow the firm to generate returns in excess of its cost of capital over the next two decades.

Read more about Meta Platforms’ economic moat.

Financial Strength

We view Meta’s financial position as rock-solid. The firm closed out fiscal 2025 with cash and cash equivalents of USD 82 billion, more than offsetting its debt balance of USD 59 billion. While the firm’s investments in AI stand to increase its capital expenditure considerably over the next few years, the firm’s advertising business remains a cash-generating machine, churning out tens of billions of dollars of free cash flow on an annual cadence.

Read more about Meta Platforms’ financial strength.

Risk and Uncertainty

We assign Meta an Uncertainty Rating of High. We believe Meta’s investments in unprofitable ventures such as generative AI and Reality Labs add a layer of uncertainty around its business, even as its large and stable advertising business continues to generate substantial cash flows in our forecast.

The firm’s high dependence on user behavior data represents an environmental, social, and governance risk. If it fails to maintain adequate data privacy and security, Meta’s advertising business will likely suffer. Also, the broader impact of social media on its users’ mental health, especially that of teenagers, is also a pertinent ESG risk for Meta. There appears to be bipartisan support in the US for increased regulation of social media platforms that could include forcing Meta to change its content recommendation algorithms, potentially hitting the firm’s advertising business.

Read more about Meta Platforms’ risk and uncertainty.

META Bulls Say

• Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms, as well as a secular increase in digital advertising spending.
• Meta’s scale, with the majority of the world’s internet-connected users accessing its applications, allows it access to high-quality user data which it can package and sell to advertisers.
• The firm has an opportunity to drive more ad inventory growth, leveraging new products such as Threads while also improving its monetization of ads on more nascent features such as Stories and Reels.

META Bears Say

• Meta’s investments in Reality Labs and generative AI stand to lose the firm billions annually, taking some of the shine off its overall business.
• The firm has a monopoly case against it in the US which could potentially force it to break up, severing some of the scale advantages it has built up over time.
• Meta has disproportionately benefited from increased ad spending by Chinese retailers including Temu and Shein. A slowdown in spending by these firms could hit Meta’s growth.

This article was compiled by Rachel Schlueter.