Meta Platforms Beats Third-Quarter Earnings Expectations, Approves New Non-Voting Share Class as AI Spending Continues to Rise!

Meta, the technology giant behind Facebook and Instagram, reported revenue of $64.6 billion for the third quarter ended September 30, up 26% year over year and above analysts’ expectations of $63.33 billion. Despite incurring $9.89 billion in legal expenses related to a settlement with 52 state attorneys general over youth mental health litigation, earnings per share rose to $3.83 from $1.05 a year earlier, beating the consensus estimate of $3.57. Advertising revenue increased 26% to $63.06 billion.  

CEO Mark Zuckerberg said user engagement on both Facebook and Instagram reached record highs. Meta expects fourth-quarter revenue of between $73 billion and $76 billion, with the midpoint above Wall Street expectations. The company also raised its full-year expense forecast to include the legal expenses mentioned above and expects full-year capital expenditures of $135 billion to $145 billion as it continues to increase investment in AI infrastructure.  

The board approved the introduction of a new publicly listed, non-voting Class C common stock, effective January 19, 2027. Meta plans to distribute the shares through a one-time stock dividend, granting one Class C share for each Class A or Class B share held. The distribution is expected to have an effect on the market price of Class A shares similar to a two-for-one stock split, while leaving existing shareholders’ voting rights unchanged. The new share class is intended to give Meta greater flexibility in financing, employee compensation, acquisitions and other corporate matters. The move was unanimously recommended by a special committee of independent directors and approved through written shareholder consent.  

During the earnings call, Zuckerberg highlighted Muse’s early progress, saying that approximately 25% of users who downloaded the AI product use it daily. He said Meta is committed to building a large-scale Muse network that enables AI agents to work together. Zuckerberg acknowledged that Muse has recently required substantial computing resources to operate, but expects its profitability to improve significantly as computing efficiency increases.  

Meta is competing in two races simultaneously: continuously improving its advertising engine through Advantage+, while building its next growth engine through Muse and business agents. Strong advertising revenue provides funding for its aggressive AI spending, but investors still need evidence that these investments can generate lasting returns. Muse shows promise, although its monetization potential remains unproven. Investors remain optimistic about both Meta’s current core business and AI’s future potential.  

Market Insight:

Meta’s operating profit fell short of expectations, primarily due to the legal expenses mentioned above. Excluding this third-quarter charge, full-year operating profit is expected to exceed its 2025 level. Reality Labs, the division responsible for virtual and augmented reality, continued to post an operating loss, although the loss was smaller than investors had expected.