Meta Q3 revenue of $64.6 billion beats expectations, raises lower bound of 2026 AI capital expenditure and plans to issue non-voting new shares

Meta reported record-high third-quarter revenue and simultaneously announced plans to issue a new class of non-voting stock, aiming to prevent Zuckerberg from leaving the jurisdiction where the company is headquartered due to California's wealth tax, while also opening up financing channels for its massive artificial intelligence investment plans.

Meta announced on Wednesday that third-quarter revenue reached $64.6 billion, up 26% year-over-year, exceeding analysts' expectations of $63.3 billion. The company expects fourth-quarter revenue to reach $73 billion to $76 billion, with the midpoint of the range above market expectations.

Profit performance was significantly affected by one-time legal settlement charges. Meta's third-quarter diluted earnings per share were $3.83, below analysts' expectations of about $6.54. The company recorded $9.89 billion in legal settlement charges; excluding that charge, earnings per share were $7.40.

Meanwhile, Meta raised the lower bound of its 2026 capital expenditure guidance from the previous $130 billion to $135 billion, while keeping the upper bound unchanged at $145 billion.

Meta shares rose as much as 6% after hours before paring gains, and were up 2.2% as of publication.

Meta's free cash flow turned negative for the first time since its IPO, at negative $2.2 billion during the reporting period, but better than analysts' prior expectation of negative $9.4 billion.

The company is investing tens of billions of dollars in chips and data center construction to gain a more favorable position in competition with OpenAI and Anthropic, and this spending continues to consume its historically abundant cash flow.

In the third quarter, Meta's capital expenditures (including principal payments on finance leases) reached $34.91 billion. The company adjusted its full-year capital expenditure guidance to $135 billion to $145 billion, up from a previous lower bound of $130 billion, reflecting that it is still investing heavily in expanding AI infrastructure.

The company announced the creation of a new non-voting Class C common stock, planned to take effect in January 2027. The arrangement is intended to provide more funding sources for the company's AI investments while avoiding weakening CEO Zuckerberg's voting control.

At the same time, this new class of stock will be distributed to existing investors in the form of a stock dividend. Meta said holders will receive one new share for each share they hold, essentially equivalent to a "two-for-one" stock split.

Meta issues new non-voting shares in exchange for Zuckerberg's commitment to remain in California

Meta reached an agreement with Zuckerberg to issue non-voting Class C stock to him. In exchange, Zuckerberg committed to continue living in California or another jurisdiction where Meta is headquartered for the next eight years.

The arrangement is also related to California's proposed billionaire wealth tax. Zuckerberg has said the tax could force him to sell voting Class B shares to raise money for taxes, reducing his voting stake in the company below 53%.

Under the agreement, Zuckerberg can immediately sell 20% of the Class C shares he receives, equivalent to 10% of his overall economic interest, with restrictions on selling the remaining shares gradually lifting over eight years.

Meta's special committee said ensuring Zuckerberg works at the company's headquarters is crucial, especially as the company works closely with Meta Superintelligence Labs and AI competition intensifies.

Meta Chief Financial Officer Susan Li said the Class C stock primarily serves as a financing tool to help the company raise funds for its AI business more flexibly while avoiding dilution of existing shareholders' voting rights.

Advertising business maintains growth, fourth-quarter revenue guidance exceeds expectations

The advertising business remains the main support for Meta's performance growth. In the third quarter, the company's ad impressions increased 10% year-over-year, and the average price per ad rose 14%. Family daily active people reached 3.64 billion, up 3% year-over-year.

Meta expects fourth-quarter revenue of $73 billion to $76 billion, with a midpoint of $74.5 billion, up about 24% from the same period last year. The guidance is above the average analyst estimate of about $73 billion compiled by LSEG, showing the company remains confident in year-end advertising demand and business growth.

The growth of the advertising business also provides important support for AI investment. Meta is applying AI to areas such as ad delivery and targeting, while trying to expand revenue sources beyond advertising through new AI products. However, whether the commercialization progress of new businesses can match infrastructure investment still needs to be verified by subsequent performance.

Meta positions its consumer AI assistant Muse as the core of its overall strategy and has reorganized the company's structure around Meta Superintelligence Labs, which is responsible for the product, while also announcing a new business line selling AI tools to enterprise customers.

According to market intelligence firm SensorTower, Muse has been downloaded more than 10 million times since launching in September, and the app offers two subscription tiers at $20 and $100 per month.

In the first month after Muse's debut, Meta's stock price rose nearly 20% cumulatively. An estimate by Truist Securities believes Muse could bring Meta about $28.5 billion in incremental revenue by 2030.

However, Muse still faces multiple obstacles: polls show public acceptance of AI assistants is generally low; in addition, dozens of websites, including Amazon, have blocked Muse's access, and some companies have also restricted its access due to security concerns, limiting the product's usefulness in scenarios such as shopping.

Legal settlement charges weigh on profit, cost growth worth watching

Meta's third-quarter net profit was $9.86 billion, with diluted earnings per share of $3.83. The company recorded $9.89 billion in legal settlement charges, causing a significant difference between reported profit and earnings excluding one-time charges.

Third-quarter revenue was above market expectations, but reported earnings per share were below analyst expectations. Excluding the aforementioned legal settlement charges, earnings per share reached $7.40, exceeding market expectations.

In August this year, Meta reached a settlement with nearly 48 U.S. states, agreeing to pay up to $18 billion over ten years and committing to a series of restrictions on how minors use Facebook and Instagram, following allegations that Meta's platforms were deliberately designed to addict children.

On the day the quarterly earnings were released, a New Mexico judge ruled that Meta must pay a $25 billion fine, after a jury found that Meta had engaged in misleading conduct regarding how it shared user data with third parties and how it enforced platform policies on hate speech and disinformation; the case involved British political consulting firm Cambridge Analytica.

However, cost pressure does not come entirely from a single legal matter. Meta's total costs and expenses in the third quarter increased 68% year-over-year to $51.61 billion, significantly faster than the 26% revenue growth. Operating margin fell to 20% from 40% in the same period last year, reflecting that the company's profitability is being squeezed as it expands AI investment.

Meta expects total full-year 2026 expenses to reach $175 billion to $179 billion. As AI-related spending continues to grow, investors need to weigh advertising business growth, the pace of cost expansion and changes in cash flow at the same time, rather than judging operating performance solely by earnings per share excluding one-time charges. Risk disclosure and disclaimer

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