Meta Platforms (META) shares experienced after-hours volatility Wednesday following its Q3 earnings release, despite reporting a robust revenue beat. The market’s initial reaction appears to stem from revised expense guidance and a significant one-time tax charge, prompting investors to reassess the near-term profitability trajectory.
The social media giant reported revenue of $51.24 billion for the three months ended September 30, a 26% year-over-year increase, surpassing the LSEG consensus estimate of $48.14 billion. Adjusted earnings per share (EPS) reached $7.25, exceeding the $6.69 expected by analysts. However, this EPS figure excludes a nearly $16 billion, or $6.20 per share, income tax charge related to the implementation of the 2017 Tax Cuts and Jobs Act.
While the tax charge is substantial, its non-recurring nature suggests it’s not the primary driver of the after-hours sell-off. CFO Susan Li reassured investors on the conference call, stating, “We continue to expect we will recognize significant cash tax savings for the remainder of the current year and future years under the new law, and this quarter’s charge reflects the total expected impact from the transition to the new U.S. tax law.”
The core concern revolves around Meta’s revised capital expenditure (capex) guidance. Management reiterated that capex “dollar growth will be notably larger in 2026 than 2025, with growth primarily driven by infrastructure costs, including incremental cloud expenses and depreciation.” Total expense growth is also projected to “grow at a significantly faster percentage rate in 2026 than 2025,” raising questions about the scale and timing of returns on Meta’s ambitious AI investments.
The market is scrutinizing the long-term ROI of Meta’s aggressive investments in artificial intelligence infrastructure. CEO Mark Zuckerberg addressed these concerns directly on the earnings call, stating, “The right strategy [is] to aggressively frontload building capacity. So, that way we’re prepared for the most optimistic cases. That way, if superintelligence arrives sooner, we will be ideally positioned for a generational paradigm shift in many large opportunities.” He further elaborated on the flexibility inherent in their strategy, noting that if AI development takes longer than anticipated, the additional compute capacity could be redirected to accelerate core business operations. This optionality, Zuckerberg argued, mitigates the risk associated with the significant upfront investment.
Meta’s bet on AI is strategic, aiming not only to enhance existing platforms but also to position the company for future technological shifts. The investment is multifaceted, encompassing advancements in recommendation algorithms, expansion of video capabilities, and development of new AI-powered consumer products. Zuckerberg highlighted that their AI recommendation systems are already yielding positive results, driving increased user engagement across Facebook and Threads.
Moreover, Meta’s robust ad business, boasting an impressive $60 billion annual run rate through AI-powered ad tools, reflects the company’s ability to monetize its advanced technology. This monetization capability provides a crucial buffer, allowing Meta to absorb initial costs while awaiting breakthroughs in emerging areas.
Beyond the capex concerns, Meta’s Q3 performance demonstrated strength across key metrics. Revenue exceeded expectations in both its Family of Apps and Reality Labs segments. In particular, the Reality Labs operating loss narrowed significantly, signaling progress in Meta’s metaverse initiatives. Engagement metrics were equally positive, with Family Daily Active People surpassing expectations and Family Average Revenue per Person showing substantial growth.
Looking ahead, Meta anticipates Q4 revenue in the range of $56 billion to $59 billion, exceeding analyst forecasts. However, the company also raised the lower end of its full-year capex forecast to $70 billion to $72 billion and its 2025 total expenses guidance to $116 billion to $118 billion, reflecting its commitment to long-term AI investments.
While the increased spending has sparked some investor apprehension, Meta’s strong fundamentals, dominant position in targeted advertising, and forward-thinking AI strategy position it for long-term growth.
Highlights from the Quarter:
- Instagram reached 3 billion monthly active users.
- Threads exceeded 150 million daily active users.
- Reels achieved an annual revenue run rate of over $50 billion.
- Meta AI boasts over 1 billion monthly active users.
- Meta Ray-Ban smart glasses experienced rapid sales.
Furthermore, Meta reported a 14% year-over-year increase in total ad impressions and a 10% increase in average price per ad, reflecting the continued strength of its advertising platform. The company also returned $3.2 billion to shareholders through share repurchases and $1.3 billion via dividends, underscoring its financial discipline.
The market will likely remain focused on Meta’s AI investment strategy and its ability to translate these investments into tangible revenue growth. The company’s upcoming quarterly reports and investor updates will be crucial in shaping investor sentiment.
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