Table of Contents
My Taiwan Semi earnings review can be found here. My big bank earnings coverage can be found here. My current portfolio/performance can be found here. Netflix and Tesla earnings reviews will both be published tomorrow.
a. Demand
Meta beat revenue estimates by 2% & beat guidance by 3.4%. I need to highlight this result for a moment. It’s very easy to shrug off 26% growth from a company of this quality and consider it normal. In the absolute best of ways… this is anything but normal. During the third quarters of 2023 and 2024, Meta grew revenue by 23% and 19%, respectively. In the two most recent third quarters (Q3-25; Q3-26), growth accelerating to 26% is wildly impressive for a few reasons. First, they’re doing this despite the already massive scale. The law of large numbers unavoidably and routinely hits virtually every other company long before they reach Meta’s size. Second, this is not getting any help from GPU rental demand. Meta has hinted at entertaining those types of deals in the future, but they haven’t yet. So? While Amazon, Google and Microsoft (amazing companies) all enjoy strong tailwinds from insatiable compute demand that is propping up cloud growth, Meta isn’t getting that same help. This result is purely from their core business.
Separately, it’s great to see ad pricing growth match Meta’s best result in over two years. There are certainly some easing macro headwinds in there, but AI investments are also helping make ads more targeted and valuable. On the other hand, impression growth across lower monetizing surfaces and regions held things back a tad. Growth would have been even stronger without that item.
Y/Y daily active people (DAP) growth is still being impacted by Iranian internet disruptions and the WhatsApp restriction in Russia.
Impressive to see Other Revenue already cross $1B in quarterly revenue over the last two periods. Having half the planet on your apps leaves plenty of room to layer on more services and build great businesses on top of what they’ve already done with little added cost or risk.
b. Profits & Margins
GAAP EBIT and net income margins as well as Y/Y EPS growth for Q3 2026 exclude a large $9.89B legal charge from settling the multi-state teen addiction lawsuit in August. This accounting expense will not recur. Had I not made this adjustment, EPS would have been $3.83 instead of $7.40. Operating margin would have been 20% and net income margin would have been 15%.
Sharply missed EBIT estimate but beat estimate by 27% ex-legal.
Sharply missed $6.80 EPS estimate but beat estimate by $0.60 ex-legal.
Beat -$10B FCF estimate by $7.9B.
Year-to-date CapEx is $86B vs. $50B Y/Y.
Even with the legal fee removal, margins fell meaningfully Y/Y due to cost of revenue and R&D buckets. All of this is tied to 3rd party AI costs and infrastructure depreciation growth. Headcount fell 15% Y/Y due to May layoffs.
c. Balance Sheet
$82B cash & equivalents.
$81B debt.
Flat diluted share count Y/Y.
Meta also announced a new class of nonvoting stock (Class C shares). This gives META another mechanism to raise equity without diluting Zuck’s voting power and almost inevitably telegraphs more equity raises probably coming in 2027. That’s not set in stone but I think it’s likely. This will begin trading at the end of January and other possible uses of the potential equity raises include employee compensation and M&A.
d. Guidance & Valuation
For Q4, Meta revenue guidance was 1.4% ahead of estimates. Guidance includes a 1 point FX headwind, meaning META just guided to 25% Y/Y constant currency growth. It raised 2026 OpEx guidance to reflect the roughly $10B legal fee incurred this quarter. This item will prevent them from growing Y/Y operating income for 2026 like they previously guided to (would have reiterated without the charge). It also boosted CapEx guidance from $137.5B to $140B. For 2027, they refrained from offering formal expense guidance and punted that to Q4. We did learn that they’ll probably stay aggressive on AI infrastructure buildouts, which should come as no surprise to anyone. They are building to serve Muse to 1B+ people, and that will need much more compute. We were also told that RL losses would narrow from $18.5B in 2026 to $15B in 2027. An important baby step. For 2027 revenue, they expect to “sustain strong overall revenue growth throughout 2027.”
“Looking beyond 2026, we are still developing our budget and capacity plans for next year, but we expect to continue investing aggressively to support both our core business and emerging AI initiatives.” – CFO Susan Li
Meta trades for 22x EPS. EPS is expected to grow by 2% this year and by 15% over the following two years. They are not expected to generate FCF again until 2028.
e. Call & Release
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