Meta AI spending remained heavy in the third quarter of 2026 as revenue beat investor expectations, but a $9.89 billion legal charge weighed on profitability. Results announced on October 21 showed revenue rising 26% to $64.60 billion and operating income falling 37% to $12.99 billion. The company also approved a new class of non-voting shares to support financing while preserving existing voting power.
Key Takeaways
- A settlement charge cut operating profit, although lower taxes lifted net income from a year earlier.
- Meta narrowed its 2026 capital expenditure outlook to $135 billion–$145 billion.
- A conditional stock dividend would give shareholders one non-voting Class C share for each existing share.
Table of Contents
- Revenue growth and legal costs pull earnings apart
- Meta AI spending keeps cash demands elevated
- Settlement accounting is separate from further legal exposure
- Non-voting stock plan adds financing flexibility
- Conclusion
Revenue growth and legal costs pull earnings apart
Meta’s third-quarter 2026 results show that stronger advertising activity accompanied the revenue increase: ad impressions rose 10% from a year earlier, while the average price per ad increased 14%. Daily users across its family of apps averaged 3.64 billion in September, up 3%.
Costs and expenses rose 68% to $51.61 billion, including the settlement charge. Operating margin narrowed to 20% from 40%. Meta said that excluding the charge, operating income would have been $22.88 billion rather than the reported $12.99 billion.
Net income nevertheless increased 264% to $9.86 billion, or $3.83 per diluted share. That does not contradict the decline in operating profit: the income-tax provision fell to $3.14 billion from $18.95 billion a year earlier. The bottom line was therefore helped by a much smaller tax expense.
| Item | Details |
|---|---|
| Fourth-quarter 2026 revenue guidance | $73 billion–$76 billion. |
| Full-year 2026 expense guidance | $175 billion–$179 billion, incorporating the third-quarter legal charge. |
| Fourth-quarter currency assumption | Approximately a 1% headwind to year-over-year revenue growth. |
| Fourth-quarter tax-rate guidance | 15%–17%, absent changes to the tax landscape. |
Meta AI spending keeps cash demands elevated
Capital expenditures, including principal payments on finance leases, totaled $34.91 billion in the September quarter. That was below investor expectations of roughly $41 billion, but exceeded operating cash flow of $32.79 billion, leaving free cash flow negative by $2.12 billion.
Meta narrowed its full-year capital expenditure forecast to $135 billion–$145 billion from $130 billion–$145 billion, raising the lower end without changing the ceiling. Management said it expects to continue investing aggressively in its core business and emerging AI initiatives in 2027, although next year’s budget was still being developed.
Chief Executive Mark Zuckerberg highlighted the launches of Muse and Muse Wonder. Meta said AI investment was already supporting advertising through stronger engagement, better recommendations and more efficient monetization, while newer initiatives would take longer to generate returns.
Reality Labs remains loss-making rather than close to a confirmed profit. Management forecast losses of $18 billion–$19 billion for 2026 and around $15 billion in 2027 as investment shifts toward other priorities, primarily AI.
Settlement accounting is separate from further legal exposure
The quarterly charge relates to an August 2026 agreement with 52 attorneys general resolving litigation over teen mental health and social media. That agreement provides for payments of up to approximately $18.59 billion; the total settlement amount and the expense recognized this quarter are different measures.
Separately, a New Mexico judge ordered Meta to pay $25 billion after a jury found that it had deceived users in a case related to the Cambridge Analytica scandal. That ruling should not be confused with the attorneys-general settlement charge included in these results.
Chief Financial Officer Susan Li warned that active legal and regulatory matters could significantly affect the business and its financial results. Meta also identified additional US youth-related trials scheduled for the coming months.
Non-voting stock plan adds financing flexibility
Meta’s board approved publicly listed, non-voting Class C common stock, with the charter change intended to take effect on January 19, 2027. The company said the new class could be used for capital raising, employee compensation, acquisitions and other corporate purposes.
The board declared a conditional dividend of one Class C share for every outstanding Class A and Class B share. Record and payment dates remain unset, and distribution depends on the charter becoming effective. The dividend itself will not change any shareholder’s voting power or constitute a cash fundraising.
Conclusion
The next operating benchmark is Meta’s fourth-quarter revenue guidance of $73 billion–$76 billion, alongside continued legal proceedings and heavy investment commitments. For the share-class plan, the next pending details are the dividend’s record and payment dates.
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