Here's the Real Problem With Meta's Latest Earnings Report

Shares of social media giant Meta Platforms (NASDAQ: META) sold off following the company's first-quarter 2026 update earlier this week, and the drop has stuck. The stock is down about 10% over the past week as of this writing.

Most of the headlines pinned the blame on one number: capital expenditures. Meta raised its 2026 capital expenditures outlook to $125 billion to $145 billion, up from a prior forecast of $115 billion to $135 billion. On the company's first-quarter earnings call, CEO Mark Zuckerberg attributed most of the increase to "higher component costs, particularly memory pricing."

A bigger spending bill is no small concern.

But another issue may be weighing on the stock -- one that I believe is arguably even more concerning: Meta's revenue guide.

Image source: Getty Images.

A strong update (on the surface)

Meta's first-quarter results were genuinely good. Revenue in the period rose 33% year over year to $56.3 billion, marking the company's fastest growth pace since 2021. Sure, the quarter benefited from a meaningful currency tailwind, but even on a constant-currency basis, revenue still rose 29% year over year -- a clear acceleration from 23% growth in the fourth quarter of 2025 and 25% in the third quarter of 2025 when similarly adjusted for currency changes.

Driving this growth, ad impressions across Meta's apps rose 19% year over year, while the average price per ad climbed 12% -- both stronger than the prior quarter, when impressions and pricing grew 18% and 6%, respectively. Additionally, Meta's daily active users reached 3.56 billion in March (though that figure was a slight quarter-over-quarter dip due to internet disruptions in Iran and a restriction on access to WhatsApp in Russia).

And operating income climbed 30% year over year to $22.9 billion, with an operating margin of 41%. But while reported earnings per share of $10.44 included a one-time $8.03 billion tax benefit -- alone adding more than $3 a share -- earnings per share, excluding that tax benefit, grew about 14% year over year.

The number that may matter most

Now to the more concerning detail.

Meta guided for second-quarter revenue of $58 billion to $61 billion. Against $47.5 billion in revenue a year earlier, the midpoint implies year-over-year growth of about 25%.

That sounds great. But on the same earnings call, chief financial officer Susan Li noted that the guide assumes a roughly 2% tailwind from foreign currency. Stripping that out, constant-currency revenue growth at the midpoint comes in around 23% -- a meaningful step-down from the 29% constant-currency growth Meta just reported.

In other words, the underlying pace of growth could decelerate by about six percentage points in a single quarter.

What's driving this outlook for a deceleration in Meta's business?

Meta's second-quarter revenue guidance embeds a range of macro outcomes, but also the byproducts of the company's continued work to improve user engagement in its apps and the performance of its ads business, Li explained during Meta's first-quarter earnings call.

Put another way, management is planning for growth in its business but is also leaving some room for some uncertainty around advertising demand.

Overall, this is still a decent revenue outlook. But investors have the right to be picky when Meta is spending as big as it is. With the 2026 capital expenditure range stretching as high as $145 billion, every step-down in revenue growth makes the long-term return on that spend a little harder to justify.

Still, with shares down about 8% year to date and trading at a forward price-to-earnings ratio of just 20 as of this writing, much of the disappointment may already be reflected in the stock. Ultimately, Meta's first-quarter update was one that lives up to a valuation like this.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.