Markets
Meta's Revenue Rose 26% to $64.6 Billion and Q4 Is Guided to $73–76 Billion. A $9.9 Billion Legal Charge Halved Operating Income, and a Non-Voting Class C Will Split the Stock Two-for-One
Meta reported third-quarter revenue of $64.60 billion on October 21, up 26% and above the $63.3 billion expected, with ad impressions up 10% and the average price per ad up 14%. A $9.89 billion charge for its settlement with 52 state attorneys general over teen mental health cut operating income 37% to $12.99 billion and earnings to $3.83 a share; without it, earnings would have been $7.40 against a $6.76 consensus. Capital spending was $34.91 billion in the quarter and free cash flow was negative $2.12 billion. The shares rose as much as 5% after hours.
Meta did the two things the market wanted and one it did not expect. Revenue for the third quarter was $64.60 billion, up 26% from a year earlier and ahead of the roughly $63.3 billion analysts had modelled, with advertising revenue of $63.06 billion growing at the same rate on 10% more ad impressions and a 14% higher average price per ad; the family of apps reached 3.64 billion daily active people in September, up 3%. For the fourth quarter the company guided revenue to $73 to $76 billion, against a $73.75 billion consensus, with about one percentage point of currency headwind. Those were the numbers the stock rose on: Meta closed the regular session up 0.47% at $697.52 and traded as high as $748 on Binance's tokenised METAB pair within thirty minutes of the release, up 7%, before settling about 3% to 5% higher in extended trading depending on the quote.
The surprise was in the expense line. Costs rose 68% to $51.61 billion because general and administrative expenses absorbed a $9.89 billion charge for the agreement Meta reached in August with 52 state attorneys general to resolve litigation over teenagers' mental health and social media, under which it will pay up to about $18.59 billion over the coming decade. Operating income fell 37% to $12.99 billion, an operating margin of 20% against 40% a year earlier, and diluted earnings were $3.83 a share; excluding the charge they would have been $7.40, above the $6.76 analysts expected. Net income was $9.86 billion. Separately, Fortune reported that a New Mexico judge ordered Meta to pay $25 billion over the Cambridge Analytica privacy case, which the company plans to appeal. Headcount fell 15% in a year to 66,775.
The AI spending that the market has argued about for two weeks came in below the run-rate some had feared and above last year's by a wide margin. Capital expenditure, including finance-lease principal payments, was $34.91 billion in the quarter, up from $19.4 billion a year earlier and $31 billion in the second quarter, and the company narrowed its 2026 range to $135 to $145 billion from $130 to $145 billion. Free cash flow was negative $2.12 billion, from $10.6 billion a year earlier, and cash and securities ended the quarter at $82.45 billion. Total 2026 expenses are now guided to $175 to $179 billion, including the charge; Reality Labs lost $4.13 billion on $443 million of revenue and is expected to lose $18 to $19 billion this year and about $15 billion in 2027, as investment is shifted away from the unit. For 2027 Meta gave no revenue figure but said it expects strong growth and "continued aggressive investment." Mark Zuckerberg's line was that "our investments are paying off, the core business is strong, and we're seeing velocity across the board," and that the Muse assistant, set up by more than 10 million people in the United States and Canada in its first month, would be monetised sooner than the company's usual billion-user playbook.
Then there was the share class. The board approved a new non-voting Class C common stock, to be issued as a one-time dividend of one Class C share for every Class A and Class B share in January 2027, after which the Class A price should reflect a two-for-one split; voting power does not change, and a Founder Alignment Agreement with Zuckerberg governs his Class C sales and service. The company said the new shares would fund the AI build-out, employee compensation and acquisitions, which is the point: non-voting stock can be printed and spent without diluting the founder's control, the structure Alphabet adopted in 2014. For an investor the economics are unchanged on the day the dividend is paid and changed thereafter, because every acquisition or compensation plan paid in Class C stock dilutes the cash flow per share while leaving the votes where they are.
What the reaction says is that growth of 26% and a fourth-quarter guide above consensus buy a lot of forgiveness for $35 billion of quarterly capital spending, negative free cash flow and a $10 billion legal bill. Alphabet and Microsoft report on October 28 and Amazon on October 29, each with its own capital-spending line, and the Fed decides the same afternoon as the first two. Meta has set the bar: the market will finance the AI build-out of a company whose advertising business grows faster than its spending. Whether it finances the companies that sell to Meta is the question Lam Research answered an hour later, by falling 6%.