Meta’s third quarter was a study in contrasts: a booming ad business funding an ever more expensive AI future — with a record legal bill landing on the same day. Revenue rose 26% to $64.6 billion, beating analyst expectations and sending shares up about 5% in after-hours trading. But operating income fell to $13 billion from $20.5 billion a year earlier, squeezed by legal charges and massive AI investment.
Hours before earnings, a New Mexico judge ordered Meta to pay $25 billion in penalties after a jury found more than 43 million violations tied to the Cambridge Analytica data-privacy scandal. Meta plans to appeal. The quarter also absorbed a $9.89 billion charge from a settlement with 48 US states over youth mental health, set to cost roughly $18 billion over a decade. Excluding that charge, earnings would have been $7.40 per share.
Meanwhile, the AI build-out is devouring cash. Quarterly capital expenditure hit $34.9 billion, flipping free cash flow to negative $2.1 billion — Meta’s first negative quarter since 2012. Full-year capex guidance was tightened to $135–$145 billion, with the floor raised from $130 billion. Meta also announced a new class of nonvoting stock, effective January, to fund AI investments without diluting Mark Zuckerberg’s voting control.
There are bright spots: Zuckerberg said more than 10 million people in the US and Canada have signed up for Muse, the personal AI agent launched in September, and fourth-quarter revenue guidance of $73–$76 billion topped expectations. But investors now want proof that AI spending converts into returns — and that privacy penalties don’t become a recurring cost of doing business. Rivals like Claude, ChatGPT, and Grok are chasing the same enterprise buyers.
Source: Zotpaper
