Meta Platforms delivered stronger-than-expected third-quarter revenue but paired the sales beat with a sharp rise in spending that pushed free cash flow below zero for the first time since the company’s listing. The results place Meta’s AI infrastructure buildout at the center of its financial story: advertising continues to expand, yet the cost of funding advanced models, data centers and computing capacity is rapidly compressing margins.
Meta reported revenue of $64.6 billion for the third quarter of 2026, up 26% from a year earlier and above the $63.3 billion analyst estimate cited in the company’s results. It forecast fourth-quarter revenue of $73 billion to $76 billion, with the $74.5 billion midpoint exceeding a consensus expectation of roughly $73.7 billion.
Shares initially rose as much as 6% in after-hours trading following the release before giving back much of the gain and trading about 2% higher. The move reflected the competing messages in the report: Meta’s advertising engine remains robust, but the company is committing substantially more capital to AI infrastructure even as its reported profitability weakens.
Legal charge weighs on reported earnings
GAAP operating profit fell 37% year over year to $12.99 billion as total costs and expenses climbed 68% to $51.61 billion. Operating margin narrowed to 20%, from 40% a year earlier.
A major contributor was a $9.89 billion legal settlement charge booked in general and administrative expenses. Meta said the charge related to an August agreement with attorneys general from 52 US states and territories, an arrangement that could involve payments of up to about $18.59 billion over the next decade.
Removing that one-time charge, Meta’s operating profit would have been approximately $22.88 billion, while diluted earnings per share would have reached about $7.40 instead of the reported $3.83. The adjusted EPS figure was above the market expectation range of about $6.08 to $6.54 provided in the earnings materials.
The distinction matters for assessing Meta’s core business performance, but it does not erase the broader rise in operating costs. The company raised its full-year 2026 expense outlook to a range of $175 billion to $179 billion, signaling that higher spending will continue beyond the settlement’s immediate accounting impact.
Advertising growth funds the AI push
Advertising remained Meta’s financial foundation. Family of apps advertising revenue reached $63.06 billion, up 26% from the prior-year quarter. Ad impressions across Meta’s apps increased 10%, while the average price per ad rose 14%.
Daily active people across Meta’s family of applications reached 3.64 billion, a 3% annual increase. The scale gives Meta a large base from which to sell advertising tools and test AI-driven consumer products, while rising ad prices show that marketers have continued to pay more for access to that audience.
Meta also said its Advantage+ advertising products were operating at an annual revenue run rate above $75 billion. The company has positioned Advantage+ as part of its effort to automate more campaign creation, targeting and optimization through machine learning. Revenue growth in those systems offers Meta a direct commercial argument for its expanding AI budget, even as infrastructure costs rise faster than sales.
The company released early figures for Muse, its AI assistant launched in September. In the US and Canada, more than 10 million users created Muse personal agents during its first month and a half of availability, Meta said. About 25% became daily active users.
More than one-quarter of Muse users made purchases through the platform, according to Meta, with average order values above $200. The company began offering monthly subscriptions priced at $20 and $100 in mid-October. Those numbers are early and cover a limited geographic market, but they give Meta a potential path toward consumer AI revenue beyond advertising.
Capital spending turns cash flow negative
Meta spent $34.91 billion on capital expenditures, including principal payments on finance leases, during the quarter. Property and equipment purchases totaled $83.06 billion through the first nine months of 2026, compared with $48.31 billion during the same period a year earlier.
Operating cash flow remained substantial at $32.79 billion in the quarter, but it was overtaken by infrastructure spending. Free cash flow was negative $2.12 billion, compared with positive free cash flow of $10.63 billion in the year-earlier quarter.
The negative result shows how far Meta’s financial model has shifted from one centered on converting advertising revenue into excess cash. The company is now directing a large share of its cash generation toward server farms, networking equipment and computing capacity intended to support advanced machine-learning models.
Meta increased the lower end of its 2026 capital expenditure forecast by $5 billion, setting a new range of $135 billion to $145 billion. It also said aggressive investment would continue in 2027. Long-term debt rose to $80.92 billion from $58.74 billion at the end of 2025, giving the company more financial flexibility while its cash demands increase.
Reality Labs losses continue to narrow slowly
Reality Labs generated $443 million in quarterly revenue and recorded an operating loss of $4.13 billion. Its loss for the first three quarters reached $13.17 billion.
Meta’s finance chief projected a full-year Reality Labs loss of $18 billion to $19 billion in 2026, followed by an expected decline to about $15 billion in 2027. The unit remains a sizable drag on consolidated earnings, although the forecast suggests Meta expects its losses to become less severe as it prioritizes AI spending across the company.
Meta ended September with 66,775 employees, down 15% from a year earlier and about 12% from the previous quarter. Even with a smaller workforce, research and development expense climbed to $59.41 billion in the first nine months, from $40.24 billion a year earlier, underscoring that computing and technical development rather than headcount are driving much of the cost increase.
The company also announced a plan to distribute new non-voting Class C shares to holders of Class A and Class B stock on a one-for-one basis. The distribution is expected to take effect on Jan. 19, 2027, with the new shares carrying no voting rights.
For markets sensitive to technology-sector spending, Meta’s report adds to scrutiny of whether AI revenue can scale quickly enough to justify the rising infrastructure bill. Meta’s fourth-quarter outlook suggests its advertising business is carrying the load for now, but its margin trajectory will increasingly depend on whether products such as Advantage+ and Muse convert expensive computing capacity into durable revenue.
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