Meta Q3 revenue jumps 26 per cent to $64.6 billion as legal charge hits operating income

CALIFORNIA: Meta is playing a long game, but the bill for its latest quarter has been anything but small. The social media giant posted a 26 per cent jump in revenue for the third quarter of 2026, even as a hefty legal charge hammered operating income and rising investment in artificial intelligence (AI) weighed on cash flow.

For the three months ended 30 September, Meta Platforms reported revenue of $64.60 billion, up from $51.24 billion a year earlier. Net income climbed to $9.86 billion from $2.71 billion, while diluted earnings per share (EPS) rose to $3.83 from $1.05.

The headline profit growth, however, masks a more complicated picture. Meta booked a $9.89 billion general and administrative expense following an agreement reached in August with 52 US state attorneys general to settle litigation concerning social media’s impact on teen mental health. The settlement framework involves payments of up to approximately $18.59 billion.

The charge helped push total costs and expenses up 68 per cent to $51.61 billion. Operating income fell 37 per cent to $12.99 billion from $20.54 billion in the year-earlier quarter, despite the strong revenue performance.

Strip out the legal expense, and the picture looks markedly different. Operating income would have reached $22.88 billion, while diluted EPS would have been $7.40, according to the company’s calculations. The effective tax rate would also have fallen to 17 per cent from the reported 24 per cent.

Meta’s advertising business continued to benefit from improvements across its platforms, with AI helping to sharpen ad delivery and performance. Advertising impressions across its Family of Apps increased 10 per cent year on year, while the average price per advertisement rose 14 per cent.

The figures suggest advertisers are not merely buying more space on Meta’s platforms; they are also paying more for each impression. That combination helped propel revenue despite the legal setback and rising expenditure.

The company’s Family of Apps, which includes Facebook, Instagram and WhatsApp, generated $64.16 billion in revenue. Advertising contributed $63.06 billion, while other sources accounted for $1.10 billion. The segment recorded operating income of $17.12 billion.

Engagement remained robust. Meta’s Family daily active people averaged 3.64 billion in September, up 3 per cent from a year earlier, underlining the enormous audience base available to advertisers.

Reality Labs, Meta’s virtual and augmented reality division, remained a costly proposition. The segment generated revenue of $443 million but reported an operating loss of $4.13 billion, highlighting the financial burden of its longer-term bets on immersive technologies.

Meta’s spending reflects its determination to build the computing infrastructure needed to support advanced AI models and services. Capital expenditure, including principal payments on finance leases, reached $34.91 billion during the quarter.

Operating cash flow stood at $32.79 billion, leaving free cash flow negative at $2.12 billion after heavy investment. The gap highlights the immediate financial demands of Meta’s infrastructure expansion, even as its advertising operations continue to generate substantial revenue.

The company ended the quarter with $82.45 billion in cash, cash equivalents and marketable securities. It also paid $1.36 billion in dividends and dividend equivalents during the period.

Headcount stood at 66,775, down 15 per cent year on year. The workforce reduction offers some evidence of cost discipline, although the sharp increase in overall expenses shows that infrastructure investment and exceptional legal costs continue to dominate the financial picture.

Meta expects fourth-quarter 2026 revenue of between $73 billion and $76 billion, assuming a 1 per cent foreign exchange headwind. The forecast points to continued growth as the company seeks to turn AI improvements into stronger advertising performance.

For the full year, Meta raised its total expense outlook to between $175 billion and $179 billion, incorporating the legal charge. Capital expenditure is projected at $135 billion to $145 billion, reflecting the scale of investment required to expand its AI capabilities.

Reality Labs operating losses are expected to narrow to between $18 billion and $19 billion in 2026, with the company anticipating a further reduction to around $15 billion in 2027 as capital is redirected towards AI.

The shift signals a changing balance of priorities. While Meta continues to invest in virtual and augmented reality, artificial intelligence is increasingly central to its spending plans and growth strategy.

Meta is also preparing a share-class restructuring designed to preserve founder Mark Zuckerberg’s voting control. Its board has approved a new class of non-voting Class C common stock, effective 19 January 2027.

Under the plan, shareholders will receive one Class C share for every Class A and Class B share held. The move is intended to deliver the economic effect of a two-for-one stock split while leaving existing voting power unchanged.

The structure would allow Meta to adjust its share capital without diluting Zuckerberg’s control over the company. It also gives the group greater flexibility in managing its stock, although the practical implications will depend on the final implementation.

Meta’s third-quarter results capture the tension at the heart of its strategy: an advertising business that continues to grow strongly, a legal bill running into billions and an AI investment programme that is consuming cash at extraordinary speed. Revenue is racing ahead, but the real test will be whether Meta can turn its AI spending into durable returns without allowing litigation and infrastructure costs to take the shine off its performance.