TLDR
- Meta shares declined 15% after earnings despite posting $51.2 billion in Q3 revenue, up 26% year-over-year
- Capital expenditure guidance increased to $70-72 billion for 2025, with 2026 expected to be higher
- Earnings per share reached $7.25, surpassing analyst estimates of $6.69
- Ad impressions climbed 14% while average ad pricing increased 10% across all platforms
- Free cash flow decreased to $10.6 billion from $15.5 billion as spending ramped up
Meta Platforms posted impressive third-quarter results that beat expectations across the board. Yet the stock dropped from $750 to $635 in just one week.
The disconnect stems from Wall Street’s concerns about the company’s escalating AI infrastructure investments. While revenue and earnings sailed past forecasts, management’s spending plans triggered a sharp selloff.
Third-quarter revenue hit $51.2 billion, beating consensus estimates by almost $2 billion. The 26% year-over-year growth represented an acceleration from previous quarters.
Earnings per share of $7.25 easily topped the $6.69 analyst forecast. The advertising business showed strength across Facebook, Instagram, WhatsApp, Messenger, and Threads.
AI Spending Plans Rattle Investors
CEO Mark Zuckerberg unveiled plans to spend $70-72 billion on capital expenditures in 2025. The bulk of this investment will fund computing infrastructure for AI-powered features.
CFO Susan Li warned that 2026 spending would be “notably larger” than 2025 levels. This suggests the company could surpass $100 billion in annual capital spending next year.
Total operating expenses are projected at $116-118 billion for 2025. Management indicated that expense growth would accelerate at a faster rate in 2026.
The vague guidance on returns from these investments has investors on edge. Meta hasn’t outlined specific revenue targets or profitability timelines for its AI initiatives.
Ad impressions grew 14% year-over-year while the average price per ad rose 10%. Daily active users increased 8%, demonstrating continued engagement across Meta’s platforms.
Forward revenue guidance came in above Wall Street expectations. This points to sustained momentum in the core advertising business despite economic headwinds.
Cash Generation Slows
Free cash flow fell to $10.6 billion in the third quarter. That’s down substantially from $15.5 billion in the same period last year.
The decline reflects higher infrastructure spending eating into cash generation. While Meta still produces strong cash flow, the trend line concerns investors focused on capital efficiency.
The spending spree draws comparisons to Meta’s metaverse investments. The company’s virtual reality bet contributed to a 77% stock decline between 2021 and 2022.
Different Technology, Similar Uncertainty
AI represents a more proven technology than the metaverse. Real-world applications already exist across multiple industries and consumer products.
However, the scale of Meta’s planned investment creates uncertainty about returns. The company maintains a strong balance sheet to support these expenditures without threatening core operations.
Management plans to enhance platform engagement and advertising effectiveness through AI. Better content recommendations and targeting tools could drive higher ad rates and impression volumes.
The company serves billions of daily users globally. This massive audience provides opportunities for monetization as AI features roll out across platforms.
Meta will provide quarterly updates on capital spending plans and AI feature performance. Investors will watch for signs that investments are translating into revenue growth.
The stock now trades at a lower valuation following the recent decline. This creates a potential entry point for investors comfortable with near-term spending uncertainty.
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