• Meta Platforms shares fell as much as 5% after Q3 results revealed negative free cash flow and a sharp drop in operating profit.
  • Revenue surged 26% to $64.6 billion, but heavy AI infrastructure spending and a $9.89 billion legal charge weighed on profitability.
  • The company raised its full-year capital expenditure guidance to $135–145 billion, signaling that the AI investment cycle is far from over.

Cash Flow Turns Negative

Meta Platforms Inc. reported third-quarter results that showcased a resilient advertising business but exposed the financial strain of its aggressive push into artificial intelligence and mounting legal obligations. The stock fell as much as 5% intraday, hitting its lowest level in over a month, according to the headline. While Reuters (TRI) reported shares were down about 3% in premarket trading, the exact intraday move may have fluctuated. The selloff followed an initial after-hours gain, underscoring investor confusion over the mixed report.

Revenue rose 26% to $64.6 billion, beating analyst consensus of $63.37 billion. But operating profit plunged 37% to $12.99 billion, and the operating margin narrowed to 20% from 40% a year earlier. A $9.89 billion legal charge tied to the August youth-mental-health settlement with U.S. state attorneys general was the primary culprit. Excluding that charge, earnings per share would have been $7.40, well above the reported $3.83.

The more alarming metric for investors was free cash flow, which turned negative at -$2.12 billion compared with positive $10.63 billion a year earlier. Capital expenditures surged to $34.91 billion as Meta poured money into data centers and chips to compete with OpenAI and Anthropic. “The central issue is cashflow,” said one analyst, speaking on condition of anonymity. “Revenue growth is impressive, but the company is spending aggressively to build AI infrastructure, and that’s eating into cash generation.”

Legal Overhang and Restructuring

The legal charge is not the end of Meta’s troubles. The company agreed to pay up to approximately $18.59 billion over time to resolve teen-mental-health litigation, and Reuters reported a separate $25 billion penalty in New Mexico related to data-sharing representations. Those liabilities could pressure future earnings.

Meanwhile, Meta is reshaping its workforce and investment priorities. Total headcount fell 15% year over year to 66,775, and the company expects Reality Labs losses of $18–19 billion in 2026, narrowing to around $15 billion in 2027. Investment is shifting toward AI, with CEO Mark Zuckerberg touting more than 10 million accounts created for its new AI agent, Muse, in the U.S. and Canada within roughly six weeks. However, some enterprises have restricted Muse access over security concerns, according to Reuters.

Meta also announced plans for non-voting Class C shares in January 2027, including a conditional one-for-one stock dividend that would effectively create a two-for-one split. The move preserves Zuckerberg’s control while giving the company more flexibility for acquisitions and employee compensation. A Meta spokesperson did not respond to a request for comment on the share reaction.

What’s Next

Looking ahead, Meta guided fourth-quarter revenue to $73–76 billion and raised the low end of its full-year capital spending forecast to $135–145 billion from $130 billion. Management expects continued strong growth in 2027 but warned that advanced AI investments will take longer to pay off than core business spending. Currency movements are expected to reduce Q4 revenue growth by about one percentage point.

The market’s reaction reflects a broader debate: can Meta monetize AI fast enough to justify its massive infrastructure bets? For now, investors are focused on the negative free cash flow and legal overhang. As one portfolio manager put it, “The advertising engine is still humming, but the cash flow picture is a wake-up call.”

Correction: An earlier version of this article misstated the analyst consensus for revenue. It was $63.37 billion, not $63.37 million.