Earnings
Meta beats third-quarter forecasts and plans non-voting Class C shares as AI spending turns free cash flow negative
Revenue rose 26% to $64.6 billion, but a $9.89 billion legal charge halved the operating margin and $34.9 billion of capital spending left free cash flow at minus $2.1 billion.
HedgeWeekly News Desk ·
Meta Platforms reported third-quarter revenue of $64.60 billion on Wednesday, up 26% from a year earlier and above the roughly $63.33 billion analysts had expected, according to Investing.com. Diluted earnings came in at $3.83 a share against a $3.57 consensus, and the stock rose about 7% after the release.
A $9.89 billion charge tied to Meta's August agreement with 52 state attorneys general over teen mental health litigation cut operating income 37% to $12.99 billion and dropped the operating margin to 20% from 40%. Net income still rose to $9.86 billion from $2.71 billion because the year-earlier quarter carried an $18.95 billion tax provision; excluding the charge, Meta put EPS at $7.40. Ad impressions grew 10%, average price per ad rose 14% and headcount fell 15% to 66,775.
Capital spending, including finance lease payments, reached $34.91 billion, more than the $32.79 billion of operating cash flow, leaving free cash flow at minus $2.12 billion versus plus $10.63 billion a year ago. Meta bought back no stock in the quarter, after $3.33 billion a year earlier. It narrowed 2026 capex guidance to $135 billion to $145 billion, raised its total expense forecast to $175 billion to $179 billion to absorb the charge, and guided fourth-quarter revenue to $73 billion to $76 billion. Separately, the board approved a listed, non-voting Class C stock effective January 19, 2027, to be distributed as one Class C share for each Class A and Class B share, which Meta expects to make Class A trade as if it had split two-for-one; voting power is unchanged.
For investors, the quarter shows Meta's AI build-out now running ahead of internally generated cash, with buybacks paused and $82.45 billion of cash and securities as the cushion. The Class C structure gives the company a share currency for capital raising, staff pay and acquisitions, according to Investing.com's account of Meta's rationale, without diluting Mark Zuckerberg's voting control. Next markers: record and payment dates for the Class C dividend, which have not been set, and 2027 spending, where Meta has said only that it will keep investing aggressively, expects strong revenue growth throughout the year and sees Reality Labs losses of around $15 billion.