TLDR
- Meta posted Q3 revenue of $51.2 billion (up 26% yearly) but EPS of $1.05 fell short of the $6.72 consensus due to a one-time charge.
- Operating margin slipped to 40% from 43% as AI infrastructure costs outpace revenue gains.
- Capital expenditure forecast increased to $71 billion for 2025 with warnings of even higher spending in 2026.
- Free cash flow fell 35% despite a 21% rise in operational cash flow as AI investments drain resources.
- BofA Securities reduced its price target to $810 from $900 while maintaining a Buy rating on the stock.
Meta Platforms reported third-quarter results that sent shares tumbling 8% in after-hours trading. Revenue reached $51.2 billion, exceeding the $49.5 billion Wall Street estimate and marking 26% growth from the previous year.
However, earnings per share of $1.05 significantly missed analyst expectations of $6.72. A substantial one-time charge during the quarter drove the earnings miss.
The company’s operating margin decreased to 40% compared to 43% in the year-ago period. This decline indicates expenses are climbing faster than sales. Research and development spending surged 28% year-over-year as Meta aggressively expands its AI research workforce.
Meta raised its full-year expense guidance as these costs continue mounting. The fourth-quarter revenue outlook remained solid despite the expense concerns.
Infrastructure Investment Ramps Higher
Meta boosted its 2025 capital expenditure projection to approximately $71 billion. The revision marks the third increase this year from an earlier estimate of $69 billion.
Company leadership stated expectations for 2026 capex dollar growth to exceed 2025 levels. The message is clear: AI infrastructure spending will continue accelerating.
Free cash flow contracted 35% even though operational cash flow grew 21%. The stark difference reflects enormous capital spending requirements. Meta’s financial position has shifted as AI investments reshape the balance sheet. The company now holds more debt, tax, and lease liabilities than cash and short-term investments for the first time.
Meta arranged a $27 billion financing deal with Blue Owl Capital last week. The structure places the Hyperion data center into a joint venture, keeping associated debt off Meta’s balance sheet.
Unlike competitors Amazon, Microsoft, and Google who rent cloud services, all Meta data center investments serve internal needs only.
AI Development Strategy Reshapes Operations
CEO Mark Zuckerberg aims to bring AI capabilities to the platform’s 3.5 billion average daily users. Goals include launching features like the Meta AI chatbot and improving advertising targeting effectiveness.
“It’s pretty early, but I think we’re seeing the returns in the core business,” Zuckerberg commented during the earnings call. “That’s giving us a lot of confidence that we should be investing a lot more.”
The path hasn’t been smooth. Meta’s Llama 4 language models debuted in April to poor reception, forcing a strategic rethink. Zuckerberg responded in June by offering elite AI researchers massive multiyear compensation packages. Reports suggest some deals reach nine-figure sums.
The centerpiece of this recruiting effort involved acquiring 49% of startup Scale AI valued at $29 billion. The primary motivation was hiring CEO Alexandr Wang to oversee Meta’s AI research operations.
Wall Street Adjusts Expectations
BofA Securities lowered its Meta price target from $900 to $810 while keeping a Buy rating. The firm cited constrained EPS growth projections and anticipated free cash flow pressure throughout 2026.
Despite these concerns, BofA believes Meta maintains a strong position with its massive user network. The firm sees opportunities for AI product integration over the next two years. Analysts suggest negative expense news is largely reflected in current pricing. Upcoming catalysts include a new large language model and content creation tools expected to boost engagement and revenue in 2026.
At the after-hours trading price of $695, Meta valued at 10.5 times projected 2027 EBITDA and 19 times estimated 2027 core business EPS. The stock currently trades at $751.67 as markets digest the margin pressure from AI spending.
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