Meta's ad business soars as AI tools drive 16% revenue growth in Q1

Meta Platforms reported significant growth in its advertising business in Q1 2025, with ad revenue increasing 16% year-over-year to $41.39 billion. The company's strategic AI investments are transforming its advertising capabilities, delivering better results for marketers while boosting Meta's bottom line.

According to Meta's first quarter results released on April 30, 2025, the company's advertising revenue grew 16% compared to the same period last year, reaching $41.39 billion. On a constant currency basis, advertising revenue would have increased by 20%, showing strong underlying business performance.

The growth in ad revenue was driven by a combination of increased ad impressions and higher prices. Ad impressions delivered across Meta's Family of Apps rose by 5% year-over-year, while the average price per ad increased by 10% during the same period. These metrics indicate Meta is successfully enhancing the value of its ad inventory through improved targeting and effectiveness.

AI revolutionizing Meta's advertising approach

During the earnings call, CEO Mark Zuckerberg highlighted how AI is fundamentally changing Meta's advertising business model. "Our goal is to make it so that any business can basically tell us what objective they're trying to achieve — like selling something or getting a new customer — and how much they're willing to pay for each result, and then we just do the rest," Zuckerberg explained.

Zuckerberg described how AI is redefining what advertising means: "I think that this is really redefining what advertising is into an AI agent that delivers measurable business results at scale. And if we deliver on this vision, then over the coming years I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today."

Meta has made significant strides in deploying AI tools that improve ad performance. The company introduced its new Generative Ads Recommendation model (GEM) for ads ranking in Q1. According to Susan Li, Meta's CFO, "This model uses a new architecture we developed that is twice as efficient at improving ad performance for a given amount of data and compute."

Early results have been impressive. Tests of the GEM model for Facebook Reels showed up to a 5% increase in ad conversions. The company is now rolling out this technology to additional surfaces across its apps.

AI-powered creative tools gaining traction

Meta is seeing strong adoption of its AI-powered creative tools. During the earnings call, Zuckerberg noted that 30% more advertisers are using AI creative tools in the last quarter. The company's Advantage+ suite of AI-powered solutions continues to gain momentum among advertisers looking to optimize their campaigns.

In April, Meta expanded access to Video Expansion for Facebook Reels to all eligible advertisers, enabling them to automatically adjust video aspect ratios by generating new pixels in each frame to optimize ads for full-screen formats. The company also rolled out image generation to all eligible advertisers and plans to test a new virtual try-on feature that uses generative AI to place clothing on virtual models.

"We're seeing continued momentum with our Advantage+ suite of AI-powered solutions," Li stated. The company has been testing a streamlined campaign creation flow for Sales, app, and lead campaigns that has Advantage+ turned on from the beginning, automating and optimizing several aspects of the campaign setup process simultaneously.

Incremental Attribution driving better results

A particularly successful new advertising feature is Meta's Incremental Attribution capability, which helps advertisers optimize for driving truly incremental conversions (those that wouldn't have occurred without an ad being shown).

Li highlighted the strong results: "We're seeing strong results in testing so far, with advertisers using Incremental Attribution in tests seeing an average 46% lift in incremental conversions compared to their business-as-usual approach." The company expects to make this feature available to all advertisers in the coming weeks.

Meta is also expanding testing of its Conversion Value Rules feature, which allows businesses to specify which audiences or conversions they value more, enabling better campaign optimization. Additionally, the company is deepening its integration with third-party analytics platforms, including Google Analytics.

Regional ad performance varies

Meta's advertising growth showed regional variations. North America remained the strongest market, with ad revenue growing 18% year-over-year to $18.26 billion. Europe and Asia-Pacific grew more modestly at 14% and 12% respectively, while the Rest of World region showed 19% growth.

The company noted that online commerce remains its largest advertiser vertical and was the biggest contributor to year-over-year revenue growth. However, Meta has observed some reduced spending from Asia-based e-commerce advertisers, particularly those targeting U.S. consumers, ahead of the de minimis exemption expiring on May 2, 2025.

"We have seen some reduced spend in the U.S. from Asia-based e-commerce exporters, which we believe is in anticipation of the de minimis exemption going away on May 2nd," Li explained during the follow-up Q&A call. "A portion of that spend has been redirected to other markets, but overall spend for those advertisers is below the levels prior to April."

Auction dynamics and competitive advantages

When asked about the impact of reduced spending from certain advertisers, Li explained that while losing large advertisers does put downward pressure on prices, Meta's diverse advertiser base helps mitigate these effects. "If some advertisers reduce their spend and prices fall, it creates an opportunity for other advertisers to step in," she noted, although this adjustment process takes time.

Li emphasized Meta's advertising business has several competitive advantages: "Advertising is a relative performance game. The vast majority of our business is direct response advertising. So, while you'd expect to see an impact there if consumer spending reduces, advertisers are also more acutely focused on measurable ROI and driving sales in that environment. And we think that benefits us on a relative basis."

Meta's advertising inventory is largely vertical-agnostic, providing flexibility when certain sectors reduce spending. The company has previously seen reduced spend in verticals like travel offset by increased demand in well-performing categories like gaming.

European regulatory challenges

A significant concern for Meta's advertising business is the European Commission's recent ruling that the company's subscription for no ads model violates the Digital Markets Act (DMA). Meta expects to make modifications to its European business model, which could negatively impact its advertising revenue.

"Based on feedback from the European Commission in connection with the DMA, we expect we will need to make some modifications to our model, which could result in a materially worse user experience for European users and a significant impact to our European business and revenue as early as the third quarter of 2025," the company stated.

European revenue represents a substantial portion of Meta's business. Li noted that "our advertising revenue in the European economic area and Switzerland, which would be the geographies impacted here, was 16% of our worldwide total revenue in 2024."

Implications for marketers

Meta's Q1 results reveal significant opportunities for marketers leveraging the platform's evolving AI capabilities. The company's investments in AI-powered targeting, creative optimization, and measurement tools are delivering stronger return on ad spend.

For marketers, the rapid adoption of tools like Advantage+ and new features such as Incremental Attribution suggests these capabilities are driving measurable performance improvements. As Meta continues to refine its AI technology, advertisers who embrace these tools may gain competitive advantages in efficiency and effectiveness.

However, marketers should also consider the potential impacts of regulatory changes in Europe and trade tensions affecting cross-border e-commerce. Diversification across geographic markets could help mitigate these risks.

Meta's advertising business continues to transform through AI integration, with significant benefits for both the company and advertisers. Despite regulatory challenges and macroeconomic uncertainties, the company's core advertising business remains robust, delivering strong growth and innovation.