Meta Platforms exceeded revenue expectations in its fiscal 2026 third quarter and raised the midpoint of its fourth-quarter outlook, but the company’s accelerating investment in AI infrastructure pushed quarterly free cash flow below zero for the first time in the figures provided. The results underline the financial trade-off facing Meta: its advertising business is producing more cash than ever, while data-center construction and computing equipment are absorbing it at an even faster pace.
Meta reported third-quarter revenue of $64.601 billion, a 26% increase from a year earlier. The figure exceeded the roughly $63.34 billion market estimate cited in the supplied data. The company expects fourth-quarter revenue between $73 billion and $76 billion, implying a $74.5 billion midpoint that is also above the approximately $73.65 billion estimate.
Shares rose about 2.9% in after-hours trading following the release, suggesting traders focused initially on the revenue outlook and the continued strength of Meta’s core advertising operation.
Advertising growth remains Meta’s financial engine
Advertising revenue reached $63.061 billion during the quarter, up 26% from a year earlier and accounting for about 97.6% of total company revenue. The result came from growth in both the volume and price of ads: ad impressions increased 10%, while the average price per ad climbed 14%.
That combination gives Meta a stronger operating base than a simple increase in users alone would provide. Its Family of Apps — which includes Facebook, Instagram, Messenger and WhatsApp — reached 3.64 billion daily active people, up 3% year on year. Revenue from the segment rose to $64.158 billion, while operating profit totaled $17.117 billion.
The figures show that Meta has continued to extract more revenue from a user base that is already enormous. Rising ad prices also indicate that advertisers are continuing to pay for access and targeting tools across Meta’s platforms, even as the company spends heavily to integrate AI into its advertising systems.
Meta said its AI efforts during the quarter included ad ranking, recommendation systems, generative ad creative and automated buying tools. Those products are designed to improve the efficiency of ad campaigns and could help support pricing and demand if advertisers see stronger returns from Meta’s platforms.
AI infrastructure turns quarterly free cash flow negative
Operating cash flow was $32.786 billion in the third quarter, but capital expenditures and principal payments on finance leases reached $34.906 billion. As a result, Meta reported negative free cash flow of $2.120 billion, compared with positive free cash flow of $10.625 billion a year earlier.
The reversal reflects the scale of Meta’s buildout of data centers and computing capacity for AI models, recommendation engines and consumer-facing products. Meta narrowed its full-year fiscal 2026 capital expenditure forecast to a range of $135 billion to $145 billion, compared with its prior $130 billion to $145 billion range.
A higher lower bound indicates that infrastructure spending has become less optional within Meta’s near-term plans. The company is committing substantial capital before the full revenue contribution from newer AI products can be measured clearly. Its advertising business currently provides the funding base, but quarterly spending has begun to exceed the cash generated from operations.
Meta remained free-cash-flow positive for the first nine months of the fiscal year, reporting $11.049 billion. It also ended the quarter with $82.45 billion in cash, cash equivalents and marketable securities, giving the company considerable capacity to maintain the investment cycle without an immediate need to raise new capital.
Legal expense distorts reported operating profitability
GAAP operating profit fell 37% from a year earlier to $12.988 billion, and Meta’s operating margin dropped to 20% from 40%. The quarter included $9.89 billion in legal expenses. Excluding that charge, operating profit would have been $22.878 billion, according to the figures supplied.
GAAP net income was $9.860 billion, up 264% year on year, while diluted earnings per share reached $3.83. An EPS figure excluding the legal expense impact was calculated at $7.40.
The gap between reported and adjusted operating results complicates comparisons with earlier quarters. The legal charge materially reduced the reported margin, while the underlying advertising business and Family of Apps segment continued to generate substantial profits. Legal costs could remain a pressure point if further disputes or regulatory actions produce additional charges, though the supplied information does not provide a breakdown of the third-quarter expense.
Reality Labs losses remain large despite improvement
Reality Labs generated $443 million in revenue, down about 6% year on year, while its operating loss narrowed to $4.129 billion from $4.432 billion in the prior-year quarter.
Meta expects the division to post a full-year operating loss of between $18 billion and $19 billion. Management also cited a 2027 operating loss of about $15 billion, pointing to an anticipated reduction but not a near-term move toward profitability.
The unit’s loss remains significant beside Meta’s AI infrastructure commitments. Together, the spending on Reality Labs and data centers places greater emphasis on the durability of advertising growth, particularly as Meta invests in products whose commercial returns may emerge over several years.
Muse provides an early consumer AI signal
Meta reported that Muse, its consumer AI product, passed 10 million accounts roughly six weeks after launching in the United States and Canada. About 25% of registered users were said to use the product on any given day.
The company expects to improve Muse’s cost efficiency by more than tenfold over the next year. That target matters because consumer AI services can become expensive when usage grows quickly, especially when they rely on intensive inference computing. Lower per-user costs would make it easier for Meta to expand access without proportionally increasing infrastructure expenses.
Meta’s third-quarter report therefore presents two parallel stories: an advertising operation that continues to outperform through higher prices and AI-enhanced targeting, and a capital program large enough to temporarily consume more cash than the company generates in a quarter. The fourth-quarter revenue outlook suggests the ad engine remains strong, while the company’s cash-flow profile will depend increasingly on whether its expanding AI capacity translates into durable revenue and lower operating costs.
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