Earnings Options Strategy | Is Meta Platforms the valuation low point in MAG7? Q4 earnings report opens a revaluation window, with a full breakdown of four key focus areas

In the just-passed 2025, the tech stock rally seems to never have stopped, but within the 'Magnificent Seven' group, Meta Platforms has had the most complicated performance, rising to a near all-time high of $795 before retreating approximately 27% from that peak; the current pullback from the high is still over 17%.

In the US stock market's Mag7 camp,$Meta Platforms (META.US)$Among the US Mag7 stocks, it remains one of the most controversial names, with strong recovery in its advertising business on one side and persistent losses in the metaverse alongside massive investments in AI on the other. The disclosure of the Q3 2025 earnings report further highlighted this tech giant's 'dual narrative.' This article will review the logic behind Meta’s Q3 performance divergence, preview four key highlights of the Q4 earnings report, and provide targeted pre-earnings options strategy suggestions.

A tale of two extremes: Meta's Q3 report card conceals underlying complexities.

As the parent company of Facebook, Instagram, WhatsApp, and Threads, Meta continues to dominate the social media space while making significant investments in artificial intelligence and metaverse technologies.Meta’s Q3 2025 earnings report showed a clear 'mixed bag,' with strong revenue growth contrasting sharply with a significant decline in profitability, while the divergent investments in AI and the metaverse have left its growth trajectory highly debated.

The sustained recovery of the advertising business drove double-digit revenue growth in Q3:According to Meta's official disclosure, Q3 total revenue reached $51.242 billion, a year-over-year increase of 26%. The core driver was the continued recovery of the advertising business, with ad impressions growing by 14% year-over-year and average ad prices increasing by 10%.

However, affected by one-time tax expenses, Q3 net profit plunged 83% year-over-year.，The $15.93 billion one-time non-cash tax expense brought by the Beautiful America Act pushed the effective tax rate from 12% in the same period last year to 87%. Excluding this factor, core profitability remained robust, with adjusted EPS at $7.25, a year-over-year increase of 20%.

The divergence in investment between AI and the metaverse became another major highlight and pain point in the Q3 earnings report.In terms of AI strategy, Meta continues to ramp up infrastructure development, with Q3 capital expenditure reaching $19.37 billion. The company also raised its full-year 2025 capital expenditure guidance to $70-72 billion, nearly doubling from $39.2 billion in 2024. This massive investment is mainly directed toward AI computing clusters, chip R&D, and large model training, including absorbing employees from chip startup Rivos to advance the 'computing sovereignty' strategy and reduce reliance on external suppliers like NVIDIA. The market is concerned that AI investments may erode the company’s free cash flow.

The metaverse business remains in a 'bleeding' state, with the Reality Labs division's Q3 losses further widening.。Revenue from this segment reached $4.7 billion in Q3, a year-over-year increase of 74%, but the operating loss was $44.3 billion. Over the past five years, the business has incurred nearly $700 billion in losses. To control losses, Meta Platforms has initiated a strategic contraction, shutting down several VR game studios and refocusing resources on AI-driven wearable devices.

II. Q4 Earnings Preview: Four Core Highlights

Meta Platforms will release its earnings report after the market closes on January 28 EST. Institutional forecasts predict revenue of $58.386 billion for Q4 2025, a year-over-year increase of 20.67%, with expected earnings per share of $8.198, up 2.21% year-over-year. The above data follows the US-GAAP accounting standards.

1. Quality of holiday season advertising

The fourth quarter is typically the peak season for e-commerce and advertising. Driven by the Christmas shopping season, the market expects Meta Platforms' advertising revenue to maintain double-digit growth. If global advertising revenue can sustain high growth as forecasted, this will be the strongest base supporting Meta Platforms' valuation recovery.

At the same time, whether overall user metrics continue to break new records, whether platform usage duration increases, and the progress of Threads’ ad monetization and Instagram’s monthly active user performance will all determine the company's long-term stickiness.

2. Scale of AI investments and expense guidance for 2026

Meta Platforms' heavy bet on AI has become a double-edged sword—enhancing user experience on one hand, while driving up costs on the other. Investors will closely examine Q4 capital expenditures and the full-year operational expenses and capital expenditure guidance for 2026. According to industry estimates, Meta Platforms’ total expenses for 2026 are projected to reach $156 billion, a 33% year-over-year increase, with capital expenditures potentially reaching $113 billion, a 58% year-over-year increase, half of which will be allocated to generative AI-related investments.

As AI investments continue to escalate, guidance on operating expenses and capital expenditures will directly influence investors' assessment of the company's profitability.What the market is more concerned about is whether the profit margin can hold the bottom line amid revenue growth?

Therefore, the progress of AI monetization pathways is also highly anticipated, including consumer-facing chatbots, enterprise solutions, creator AI content generation, and the development progress of large models Avocado and Mango, which will directly impact market confidence in its long-term growth.

3. Reality Labs performance and overall user growth metrics

After layoffs and budget cuts, the reduction in losses for the Reality Labs division has become a key focus in the Q4 earnings report. The market expects that the division's Q4 loss may narrow to less than $4 billion. If this goal is achieved, it will alleviate concerns about its cost pressures.

Recently, Meta announced a 10% workforce reduction in its metaverse division, Reality Labs, affecting approximately 1,500 employees. If this strategic shift is further confirmed during the earnings call, it will be viewed by the market as a positive signal.

4. Manus AI integration and regulatory concerns

By the end of 2025, Meta's $2 billion acquisition of the AI startup Manus became major news in both the tech and investment circles. This acquisition aims to strengthen its transition into intelligent systems and enhance its AI ecosystem layout.

This acquisition is considered a crucial step in Meta's transition from "large models" to "intelligent agents."If Meta can integrate Manus' capabilities into existing products, whether consumer-facing chatbots, enterprise solutions, or creator content generation tools, its AI monetization pathway will become much clearer.

During the Q4 earnings call, the market will closely watch how Meta integrates Manus' technology into existing applications and AI models, as well as updates on related compliance reviews.According to Bloomberg, relevant authorities are further reviewing the deal., with a focus on issues such as technology exports, national security, and cross-border capital flows. The pace of compliance will directly impact the progress of its AI strategy.

III. Pre-earnings report options strategy: Seizing investment opportunities amid volatility

As of the close on January 23, 2026, Meta Platforms' stock price was $658.76, with a price-to-earnings ratio (TTM) of 29 times,making it the lowest-valued target in the current Mag7 group, significantly lower than NVIDIA's 46 times and Tesla's 309 times.

Despite the contraction in valuation, Meta Platforms' core fundamentals remain unchanged. The strong resilience of its advertising business and the long-term potential of its AI strategy have led analysts to widely believe that its risk-reward ratio has reversed, making it one of the most attractive investments within the Mag7 currently.

Considering market sentiment and signals from the options market ahead of Meta Platforms' earnings report, the market is generally optimistic about its Q4 results. Options strategies can focus on 'volatility trading' and 'directional positioning,' balancing risk control with profit enhancement.

From the perspective of options market signals, implied volatility (IV) prior to the earnings report remains highly volatile, reflecting strong expectations for post-earnings stock price fluctuations.

Based on calculations from options market signals, Meta Platforms' stock price is expected to fluctuate by ±6.72% after the earnings release.

Meanwhile, the put/call ratio in options trading volume has dropped to around 0.58, indicating a higher proportion of bullish bias and showing that investors have some expectations for Q4 results to exceed forecasts.

Strategy One: Go long on volatility, buy a straddle

If investors believe that the Q4 earnings report will exceed market expectations or that the market has overreacted to subpar results and that stock price fluctuations will exceed ±6.72%, they can choose to buy both call and put options with the same strike price and expiration date.This strategy does not require predicting the direction of the stock price but instead focuses on capturing the opportunity of rising volatility. Significant upward or downward movements in the stock price can generate profits, making it suitable for investors who are uncertain about the earnings trend but optimistic about increased volatility.

Strategy Two: Bet on stronger-than-expected ad revenue, construct a bull call spread

If investors are confident in Meta’s Q4 ad business performance and expect strong earnings to drive the stock price higher, they can choose to buy slightly out-of-the-money call options while selling call options with higher strike prices to create a bull call spread strategy.This strategy reduces the cost of simply buying call options while locking in maximum gains, balancing profit potential with risk management, and is suitable for investors who anticipate stock price upside but wish to avoid excessive costs.

Strategy Three: Long-term bullish view, sell put options

For investors holding Meta Platforms shares or those bullish on the stock long-term, they can consider selling slightly out-of-the-money put options.If the share price rises after earnings, premium income can be collected to enhance returns; if the share price falls, shares can be acquired at a predetermined price at a lower level, reducing the cost basis, making this strategy suitable for long-term investors willing to bear short-term pullback risks.

Summary

On the eve of the Q4 earnings release, Meta stands at a delicate crossroads.

The strong resilience of its advertising business provides stable cash flow, while the long-term potential of its AI initiatives supports growth prospects. However, ongoing losses and cost pressures from the metaverse, along with uncertainty around AI monetization, are putting its near-term profitability under pressure.As the lowest-valued stock among the Magnificent Seven, Meta Platforms' current risk-reward ratio has become attractive. Key catalysts for its valuation recovery will include advertising performance, AI monetization, narrowing losses in the metaverse, and progress in Manus integration in its Q4 earnings report.

For investors, they can seize short-term volatility opportunities after earnings reports through options strategies, or take a long-term position in its AI transformation and advertising business for sustainable value.

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Disclaimer

This content does not constitute any offer, solicitation, recommendation, opinion, or guarantee of any securities, financial products, or tools. The risk of loss in buying and selling options can be substantial. In some cases, your losses may exceed the initial margin amount deposited. Even if you set contingent orders, such as 'stop-loss' or 'limit' orders, these may not necessarily prevent losses. Market conditions may make these orders unexecutable. You might be required to deposit additional margin within a short period. If you fail to provide the required amount within the specified time, your open positions may be liquidated. However, you will still be responsible for any account deficit arising from this. Therefore, before trading, you should study and understand options and carefully consider whether such trading suits you based on your financial situation and investment objectives. If you trade options, you should be familiar with the procedures upon exercising options and at expiration, as well as your rights and obligations when exercising options and at expiration.

Editor/Doris

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