Meta Platforms reported third-quarter revenue of $64.6 billion on Wednesday, October 21, up 26% from a year earlier and ahead of the $63.3 billion analysts expected, as advertising held up through a quarter dominated by the cost of its AI expansion. Reported earnings came in at $3.83 per share after a $9.9 billion legal charge tied to its multistate teen-safety settlement; excluding that charge, Meta said earnings would have been $7.40 per share.
The results, released after the US market close, were the first from a major US tech company this earnings season, and they landed on a day when Meta’s legal bills were already headline news: hours earlier, a New Mexico judge had ordered the company to pay $25 billion in a privacy case, as we report in the judgment against Meta in New Mexico.
Advertising Carried The Quarter, Legal Costs Cut The Profit
Advertising revenue rose 26% to $63.06 billion, beating forecasts of about $61.9 billion, and revenue from the Family of Apps segment — Facebook, Instagram and WhatsApp — reached $64.16 billion. Ad impressions grew 10% year over year while the average price per ad rose 14%, and Meta’s family of services averaged 3.64 billion daily users.
Profitability told the other half of the story. Operating income fell 37% to $12.99 billion, well short of the roughly $20.9 billion analysts had modelled, and the operating margin compressed to 20% from 40% a year earlier. The gap is largely the legal charge: third-quarter costs and expenses include a $9.89 billion charge related to the August agreement with state attorneys general resolving teen mental health and social media litigation, which provides for payments of up to about $18.6 billion. Reality Labs, the division behind Meta’s headsets and AI glasses, posted revenue of $443 million, down 5.7% and below expectations, with an operating loss of $4.13 billion — narrower than the $5.13 billion loss analysts feared.
The AI Bill: Capex Floor Raised, Expenses Lifted, New Shares Created
Meta narrowed its full-year capital expenditure guidance to between $135 billion and $145 billion, raising the floor from $130 billion, and said it expects to keep “investing aggressively” in its core business and AI in 2027. The money is going into chips and data centres — the build-out behind projects such as the Prometheus supercluster in Ohio, whose first phase trained the Muse models — as Meta competes with OpenAI and Anthropic and its historically strong free cash flow erodes.
Full-year total expense guidance rose to between $175 billion and $179 billion, up from $165 billion to $169 billion, a lift Meta attributed to incorporating the legal charge. For the fourth quarter, the company guided revenue of $73 billion to $76 billion, above the $73.6 billion consensus. It also announced the establishment of a new non-voting Class C common stock, effective in January — a structure Reuters notes could help finance acquisitions and attract talent without diluting chief executive Mark Zuckerberg’s voting control.
“We hit major milestones this quarter toward delivering personal superintelligence for everyone — including launching Muse and Muse Wonder, our first frontier model,” Zuckerberg said in the release. Muse, the company’s consumer AI agent launched on September 8, has become the public face of that strategy, reaching 10 million US downloads in its first 40 days.
Why It Matters
Meta’s quarter matters because it tests the deal investors have been offered all year: advertising growth funds the AI build-out, and one-off legal charges are the toll. On the evidence of Q3, the first half of that deal is intact — ads grew 26%, guidance for Q4 came in above consensus, and the stock rose more than 2% in after-hours trading. The toll, however, is getting harder to call one-off: a $9.9 billion charge this quarter, a $25 billion judgment the same day, and an expense outlook that had to be raised by $10 billion to absorb them. The Class C share plan is the tell that management expects the spending — on data centres, chips and talent — to stay at this scale long enough to need new ways to pay for it. What decides the story from here is whether Muse and Muse Wonder convert that spending into products people and advertisers pay for, before the legal and infrastructure bills compound further.
Background
Meta’s AI spending has escalated through 2026: capital expenditure guidance began the year far below the current $135 billion to $145 billion range, free cash flow fell sharply in the second quarter as the build-out accelerated, and the September launch of Muse and the Muse Wonder frontier model gave the spending a consumer product to point at. The teen-safety settlement behind this quarter’s charge was agreed in August with state attorneys general, resolving claims that Meta’s platforms were designed to addict children — one front in a legal campaign that also produced this week’s New Mexico judgment.
Source: Reuters, Investor’s Business Daily
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