Meta reported third-quarter revenue of $64.6 billion on October 21, up 26% from a year earlier and above the $63.3 billion analysts expected, according to Fortune's Amanda Gerut. Profit told a different story. A large legal charge and a sharp rise in AI spending pulled down operating income and turned free cash flow negative.
The headline numbers
Net income was $9.9 billion, or $3.83 a share, compared with $2.7 billion, or $1.05 a share, a year earlier. Operating income was $13 billion, down 37%. Fortune attributes the drop to a $10 billion settlement with a group of state attorneys general over youth safety. Excluding that charge, operating income would have been $22.9 billion and earnings per share $7.40. Under the settlement terms, Meta will pay about $18 billion to the states over the next decade, depending on cooperation from TikTok and YouTube. Separately, a New Mexico judge ordered Meta to pay $25 billion in penalties tied to the Cambridge Analytica scandal after a jury found more than 43 million violations, a count that could have implied a penalty near $220 billion. Meta plans to appeal.
Capex and cash flow
Capital expenditures were $34.9 billion, up from $31 billion in the second quarter and $19.4 billion a year earlier. Meta narrowed its 2026 capex guidance to $135 billion to $145 billion, from $130 billion to $145 billion. Free cash flow was negative $2.1 billion, against $784 million in the second quarter and $10.6 billion a year earlier. Visible Alpha's Melissa Otto said consensus 2026 capex has risen more than $14 billion since April, to about $140 billion, nearly double 2025, and projected industry-wide tech capex of $790 billion in 2026 versus $404 billion in 2025, and $1.2 trillion in 2027.
Guidance and AI
Fourth-quarter revenue guidance of $73 billion to $76 billion compares with the $73.75 billion analysts expected. About a week before the results, Meta Superintelligence Labs launched Muse Wonder to the public, which Fortune describes as the company's first frontier model. In a prepared statement, Mark Zuckerberg said: “Our investments are paying off, the core business is strong, and we're seeing velocity across the board.”
Market reaction
Shares rose more than 5% in after-hours trading on Wednesday, driven by revenue growth and interest in the new AI tools. The article gives no headcount figures or operating expense line items.
Source: Fortune. This is an AI Business Watch summary of the original report.