Meta's AI build-out cost more than its business brought in this quarter

Meta's ad business had a very good quarter. Its AI shopping list had a better one.

The numbers. In its third-quarter results on October 21, Meta reported revenue of $64.60 billion, up 26% from a year earlier, with average price per ad up 14% and ad impressions up 10%. Operations generated $32.79 billion in cash. Capital expenditures, including principal payments on finance leases, were $34.91 billion, driven, Meta said on its earnings call, by investments in servers, data centers and network infrastructure. Subtract one from the other and free cash flow was negative $2.12 billion, against positive $10.63 billion in the same quarter last year, according to the reconciliation table in Meta's release. Meta still ended September with $82.45 billion in cash, cash equivalents and marketable securities.

Profit took a hit too, but mostly for another reason. Operating margin fell to 20% from 40%. Most of that came from a $9.89 billion charge for Meta's agreement with 52 state attorneys general over teen mental health litigation. Without it, Meta says, operating income would have been $22.88 billion and diluted EPS $7.40 instead of $3.83.

More spending is coming. Meta now expects 2026 capital expenditures of $135-145 billion, narrowed from $130-145 billion. For 2027 it says it expects "to continue investing aggressively to support both our core business and emerging AI initiatives." It guided fourth-quarter revenue to $73-76 billion.

A new way to pay for it. Meta's board approved a new class of publicly listed, non-voting Class C common stock, effective January 2027. Meta's release says the "scale of investment required to compete" in AI is significant and the new class gives it the ability to raise capital, pay employees and fund acquisitions. SiliconANGLE reports the shares will be distributed as a dividend of one Class C share for each existing Class A and Class B share, and that Mark Zuckerberg's voting control is unaffected.

How the stock took it. CNBC reported Meta shares rose about 2.5% in extended trading after the release.

Our take

The quarter in one sentence: the ads machine is printing money and the AI build-out is spending all of it, plus a little more. Meta's pitch is that the AI is what's lifting ad prices, and the 14% jump in price per ad supports that story for now. The new non-voting shares are the tell, though: a company that expects to keep spending more than it makes on AI is building itself a way to raise money without giving up any control.

What we did and didn't do: the figures above come from Meta's earnings release and its GAAP to non-GAAP reconciliation, read October 21, 2026, plus CNBC's and SiliconANGLE's reporting and The Motley Fool's call transcript. We didn't listen to the full earnings call. Free cash flow is a non-GAAP measure, calculated by Meta. This is not a recommendation to buy or sell anything. Not sponsored; no affiliate links. Not investment advice.

MODEL Editors