Meta Platforms delivered a robust third-quarter performance on Wednesday, with revenue climbing 26% to $64.6 billion, driven by AI-powered ad targeting and higher ad prices. The results, which sent shares up about 5% in after-hours trading, signal that the company's heavy investment in artificial intelligence is beginning to pay off.
The social media giant, which owns Facebook, Instagram, and WhatsApp, reported net income of $9.86 billion, or $3.83 per share, for the July-September period. That compares with a profit of $2.71 billion, or $1.05 per share, a year earlier, when earnings were hit by a one-off tax charge.
Investors are particularly focused on Muse, the personal AI agent launched in September. CEO Mark Zuckerberg said Muse could eventually generate more revenue per user than Instagram or Facebook, with a business model combining subscriptions, ads, and e-commerce. Early data shows more than 10 million users in the US and Canada have signed up, with an average spend of around $200 per purchase, often on shopping and travel.
“The launch of Muse aims to fuel that next growth development and early signs look promising,” said Ben Barringer, head of technology research at Quilter Cheviot. “Meta wants to scale this to one billion users globally and get to profitability quicker than the company would usually do.”
AI spending and cash flow concerns
Despite the strong top-line growth, Meta's quarterly free cash flow turned negative for the first time since 2012, reflecting the intense capital expenditure on AI infrastructure. The company raised its 2026 capex forecast to between $135 billion and $145 billion, up from a previous range of $130 billion to $145 billion. Zuckerberg noted that Muse requires significant computing power, but he expects cost efficiency to improve by more than tenfold over the next year, which should enable profitability once revenue scales.
For the current quarter, Meta projects revenue between $73 billion and $76 billion, with the midpoint exceeding analyst expectations of $73.65 billion. The company also reported that daily active people across its family of apps grew 3% year-on-year to an average of 3.64 billion in September.
Legal costs take a bite
Meta's earnings were announced just hours after a New Mexico judge ordered the company to pay $25 billion in a case related to the Cambridge Analytica scandal, where a jury found Meta had deceived users about data privacy. CFO Susan Li said on an analyst call that the company continues to monitor legal and regulatory matters that could significantly impact its business.
Additionally, Meta's third-quarter profits were reduced by a settlement worth up to $18.59 billion over social media's effects on teen mental health, reached with 48 US states in August. Excluding the $9.89 billion charge related to that agreement, earnings would have been $7.40 per share.
New share class to fund AI and protect Zuckerberg
Meta also announced that its board approved the creation of a new class of nonvoting Class C common stock, effective in January. The move is designed to raise capital for AI investments without diluting Zuckerberg's control. “Meta plans to issue nonvoting shares to fund AI investments without diluting CEO Mark Zuckerberg's control,” said Andrew Rocco, stock strategist at Zacks Investment Research.
The new share structure could also help Zuckerberg avoid selling voting shares to pay a potential billionaire wealth tax under California's Proposition 40, which voters will decide in November. In a securities filing, Meta said Zuckerberg's voting power could drop to approximately 53% or lower if he had to sell a significant portion of his voting shares to cover increased taxes.
While legal and regulatory pressures persist, Meta's core advertising business remains resilient, and the early traction of Muse suggests a promising growth avenue. As Barringer put it, “All in all, though, Meta's core business remains strong, and with Muse being scaled up at pace, you can see a solid runway for future growth too.”
