Meta Beats Q3 Revenue Estimates but Legal Settlements Weigh on Earnings
Meta reported record third-quarter revenue of $64.6 billion, topping analyst forecasts, but a $10 billion youth-safety settlement charge and soaring AI capital spending dragged operating income and free cash flow below expectations. The company also announced a stock split creating Class C shares.
Meta Platforms reported record third-quarter revenue that exceeded Wall Street forecasts, but the social media giant's earnings were sharply reduced by a multibillion-dollar legal settlement tied to youth safety claims. Revenue for the July-to-September period rose 26% to $64.6 billion, beating the $63.3 billion consensus estimate from analysts surveyed by Visible Alpha, according to S&P Global Market Intelligence.
Net income came in at $9.9 billion, or $3.83 per share, compared with $2.7 billion, or $1.05 per share, in the same period a year earlier. The headline profit figure still beat analyst expectations, but the underlying picture was less rosy. Operating income, a measure of profit from Meta's core business, fell to $13 billion from $20.5 billion a year ago and came in well below the $16.9 billion analysts had projected. Operating margin compressed to 20%, down from 31% in the prior quarter and 40% a year earlier.
The earnings hit stemmed largely from a charge related to a $10 billion settlement Meta reached with a group of state attorneys general over youth safety. Under the terms of the agreement, Meta will pay roughly $18 billion to the states over the next decade, contingent on cooperation from TikTok and Google's YouTube. Excluding that charge, operating income would have been $22.9 billion and earnings would have reached $7.40 per share, rather than the reported $13 billion and $3.83.
Separately, hours before the results were released, a New Mexico judge ordered Meta to pay $25 billion in penalties related to the Cambridge Analytica data privacy scandal. A jury had previously found more than 43 million violations, which could have exposed the company to penalties approaching $220 billion. Meta said it plans to appeal the ruling.
Capital expenditures continued to climb as Meta pours money into artificial intelligence infrastructure. Third-quarter capex reached $34.9 billion, up from $31 billion in the second quarter and $19.4 billion a year ago. The company slightly raised the low end of its full-year capex guidance to a range of $135 billion to $145 billion, from $130 billion to $145 billion previously. Analysts had already been raising their 2026 capex expectations, with consensus rising more than $14 billion since April to about $140 billion, nearly double 2025 levels, according to Melissa Otto, global head of Visible Alpha research at S&P Global.
The spending surge has weighed on free cash flow, which turned negative at $2.1 billion in the third quarter, compared with positive $784 million in the second quarter and $10.6 billion a year ago. Investors have been pressing Meta for clarity on how its AI investments will translate into shareholder returns, even as the broader technology sector's infrastructure spending is projected to reach $790 billion in 2026 and $1.2 trillion in 2027.
The results also follow a strong month for Meta's stock, which recently touched its highest point of the year after several months of turbulence. Alongside the earnings report, Meta announced a stock split that will create Class C shares, a move that could make the stock more accessible to a broader range of investors. The company also recently launched Muse Wonder, its first frontier AI model from Meta Superintelligence Labs, a week before the earnings release.
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