Meta's Threads Ad Rollout Adds Revenue Potential Amid Rising Cost Pressures

What happened

Meta has announced the global rollout of advertising on its Threads micro-blogging service, starting next week. Threads has surpassed 400 million active users and now exceeds X in daily active users globally, positioning it as a significant platform within Meta's Family of Apps. This move aims to monetize a rapidly growing user base, potentially boosting ad revenue which already drives over 98% of Meta's sales. However, the DeepValue report underscores that Meta faces escalating AI infrastructure capex and Reality Labs losses, with costs growing faster than revenue in recent quarters. The success of Threads ads could help offset margin pressures, but it depends on effective monetization without alienating users in a competitive social media landscape.

Implication

Threads' ad monetization could provide incremental revenue growth, supporting Meta's ability to maintain its ad share gains over competitors. If Threads sustains user engagement and ad pricing, it may enhance ARPU and diversify revenue within the Family of Apps. However, Meta's guidance for significantly faster expense and capex growth in 2026, coupled with persistent Reality Labs losses, threatens to erode operating margins despite revenue increases. Investors should assess whether Threads can generate material, profitable growth relative to the scale of Meta's overall operations and ongoing AI investments. This development reinforces the bull case for top-line expansion but does not mitigate the fundamental risk of poor return on capital from heavy spending.

Thesis delta

The introduction of ads on Threads strengthens the revenue growth narrative by adding a monetizable platform with over 400 million users, potentially aiding Meta's goal of sustaining high ad growth rates. However, it does not alter the core investment thesis centered on margin risk from AI capex and Reality Labs losses, as the incremental revenue may be offset by rising costs. Therefore, the WAIT rating remains appropriate, with investors needing clearer evidence that Threads ads can drive profitable scale without exacerbating financial pressures.