Preview|META 2Q25: Product Innovations Drive Potential Revenue Acceleration-Part1

Agency Survey, Tariffs, TEMU/SHEIN, Product Innovation, Recommendation System Progress

We publish META previews each quarter. Last quarter, we successfully bet against consensus and identified META's significant beat opportunity in 1Q25.

This quarter, we remain excited. After investing more resources in our research, we've strengthened our confidence in META's revenue growth for this quarter and the second half of the year. While CAPEX investments may lead to gross margin decline next year, considering AI is the most important growth theme for the next decade, I believe the market will be more tolerant of margin pressure than during META's large-scale Reality Lab investments, with more revenue upside potential ahead.

We recently spoke with 15 experts and have updates on several key topics:

1. Overall ad revenue trends for 2Q25 and 2025 expectations

2. Tariff impact

3. TEMU/SHEIN impact

4. Major product developments

5. Recommendation algorithm progress

6. META AMM status

7. META AI progress

8. Latest CAPEX updates

9. TikTok growth trends

10. Model Updates

In this Part 1 report, we'll primarily discuss topics 1-5.

Overall Ad Revenue Trends for 2Q25 and 2025 Expectations

We recently communicated with five META advertising agency experts, including multiple conversations with North American A, North American B, and Chinese A agencies before and after tariff implementation to track macroeconomic and tariff impacts on ad spending.

North American Expert A manages over $100M in annual cross-channel spending, with high concentrations in e-commerce, gaming, and internet services.

• In our late March conversation with North American Expert A, despite automotive tariffs already taking effect, this expert remained optimistic and raised their 2025 forecast.

  • At that time, the expert believed 2Q25 might resemble 3Q24: "In 3Q24, advertisers were concerned about recession and temporarily paused budgets. But budgets were paused, not canceled, so we quickly saw acceleration in 4Q24. Currently, no one knows exactly how tariffs will impact the economy, or what the relationship will be between consumer behavior and tariffs."

  • They identified key factors for 2025: "The first factor is the economy, but that currently appears to have limited impact on us. The second factor is TikTok—if the TikTok deal ultimately fails, the US+NATO will have $13 billion in ad budgets flowing out; simultaneously, we're seeing strong monetization from Business Messaging products, which will help."

• In our April conversation with North American Expert A, as tariffs progressively took effect in April, the expert showed notable changes in outlook and downgraded their 2025 forecast.

  • "The automotive industry shifted 2Q25 budgets to 1Q25 and significantly cut 2Q25 spending. E-commerce companies have already begun drastically reducing SKUs related to Chinese manufacturing, and we're seeing impacts on consumer expectations in travel, e-commerce, and CPG."

  • "We remain optimistic about Business Messaging products, which may offset some macro impacts. The sequential reduction will be greatest in 2Q25, with smaller sequential reductions in 3Q25 and 4Q25."

• In our late June conversation with North American Expert A, following US-China tariff easing in early May, the expert shifted from pessimistic back toward optimistic and raised their 2025 forecast.

  • "Tariffs have clearly eased. When the market assumes tariffs will remain in place and stable, businesses can take on more risk and don't need to be as cautious as before."

  • "We're also seeing META and GOOG accelerating their innovation pace, and we see new ad products performing well for the foreseeable future."

Similar changes occurred with North American Expert B, a global 4A Agency trader with over $200M in annual cross-channel budget, all allocated to the US.