The S&P 500 was down less than 1% in April; How tariffs impacted first-quarter GDP; A review of Meta Platforms' earnings and current valuation

1) When I saw this post on social platform X from the Economist's Wall Street editor, I was so surprised that I double-checked it. Turns out he's right – the S&P 500 Index was down a mere 0.8% in April:

This is why I've been telling my readers to ignore the volatility and scary headlines and sit tight...

2) The Commerce Department reported yesterday that the U.S. economy shrank by 0.3% in the first quarter – the first contraction since early 2022. This might appear to be bad news... But as this Wall Street Journal article explains, a surge in imports dragged down the figure by nearly 5 percentage points: U.S. Economy Shrank in First Quarter as Imports Surged Ahead of Tariffs. Excerpt:

The U.S. economy contracted in the first three months of 2025, as businesses rushed to stock up on imports ahead of the Trump administration's tariffs and consumer spending slowed...

Consumer spending, the economy's main engine, rose at a 1.8% pace in the first quarter, the smallest increase since mid-2023. Spending by the federal government fell as the Department of Government Efficiency cut jobs and contracts.

But the main driver of the first-quarter contraction was Trump's trade war. Net exports, the difference between what the U.S. imports and exports, subtracted nearly 5 percentage points from headline GDP. That was the biggest quarterly drag from net exports on record dating back to 1947.

Here are two posts on X with charts that show the unprecedented impact of the surge in imports:

In summary, there are many pieces of data that investors should be paying attention to, but the first-quarter GDP number isn't one of them, given the unusual tariff-related distortion that masked otherwise healthy economic growth. And keep in mind that President Donald Trump's "Liberation Day" tariff announcement wasn't until April 2, after the first quarter ended.

3) In the April 17, 2019 inaugural issue of my former newsletter Empire Investment Report at my old firm Empire Financial Research, I recommended four core holdings: Berkshire Hathaway (BRK-B), Amazon (AMZN), Alphabet (GOOGL) (whose first-quarter earnings I covered last week), and Meta Platforms (META).

Since then, through yesterday's close, they're up 153%, 98%, 156%, and 207%, respectively – an average of 154% versus 92% for the S&P 500.

Meta reported strong first-quarter earnings yesterday, and the stock jumped as much as 8% earlier this morning. So let's take a closer look... (You can see the full earnings release here and investor presentation here. And here's the story from the Wall Street Journal: Facebook Parent Posts $42 Billion in Sales, Points to Strong Growth.)

Revenue jumped 16% year over year ("YOY") and 19% on a constant-currency basis. This was driven by three main factors...

First, the number of daily active users for Meta's family of apps, which includes Facebook and Instagram among others, rose 6% YOY to 3.43 billion – an incredible number considering the global population is around 8 billion.

Second, Meta fed these users a few more advertisements, as "ad impressions delivered" rose 5% YOY.

Finally, Meta was able to charge a 10% higher average price per ad than the same period last year.

Meanwhile, costs and expenses only rose 9% YOY – astoundingly small growth given the strong jump in revenue. And the tax rate dropped from 13% to 9%.

All of this translated into phenomenal earnings-per-share ("EPS") growth of 37% to $6.43, obliterating estimates of $5.25.

This chart from the investor presentation shows Meta's strong revenue growth over the past two years:

Expenses are growing much slower, so they're falling as a percentage of revenue:

As a result, EPS is soaring:

Capital expenditures ("capex") doubled from $6.7 billion to $13.7 billion YOY, and management expects capex to be between $64 billion and $72 billion in 2025.

Meta guided for first-quarter currency-adjusted revenue growth of 8% to 16%, which I believe will likely prove to be conservative.

Overall, this kind of growth rate for a company this large is astounding.

For further insights on Meta, I reached out to an old friend yesterday who knows the company better than just about anyone. He has been an entrepreneur, executive, and investor in the tech sector for the past three decades and invested in Meta at well under $1 per share (shares he still owns!) when it was still a private company. He e-mailed me:

On the conference call, [CEO Mark] Zuckerberg announced five strategic initiatives/opportunities: "improved advertising, more engaging experiences, business messaging, Meta AI, and AI devices."

If only a few of these work, Meta's investment in them will generate a positive return on investment ("ROI") – but if all five of them work, this is going to be an absolute home run. And I believe all five will work!

With 3.4 billion people using Meta every day, chances are good that they have all the data they need to know that these five initiatives are targeting strong unmet user needs.

Further, they have demonstrated that they are clearly capable of building and investing in the needed technology to deliver against their priorities.

The capital investments they're making in all of the projects are likely derived after ROI is proven in smaller cohorts. They are not investing blindly.

No other company has so effectively used AI (and perhaps eventually artificial general intelligence) to deliver on their strategic imperatives and also expand the pie.

In summary, this earnings report and conference call were outstanding, and I think it's a "back-up-the-truck" moment for the stock.

Thanks to my old friend for this insight! Now with everything laid out, let's turn to Meta's valuation...

At a close of $549 yesterday, that means the stock would be trading at 22.4 times the consensus EPS estimate of $24.56 for this year (coming into the earnings report). But since Meta blew past EPS estimates and gave solid guidance, analysts are likely revising their models.

In summary, one of the greatest businesses of all time is boasting phenomenal growth and plans to implement five powerful strategic initiatives to further that growth. However, the stock is currently trading at a price-to-earnings multiple around that of the average large American business (i.e., the S&P 500), which makes no sense.

Putting all this together, Meta's stock looks downright cheap at current levels.

Best regards,

Whitney

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