Meta Platforms shares fell on Thursday, October 22, 2026, by about 6%-7% in morning trading at $650 per share after the firm released its Q3 earnings the previous night.
The company beat revenue and guidance expectations and shares rose by about 3% in extended trading. Investors subsequently shifted focus to heavy expenditure on AI, negative free cash flow and introduction of a new non-voting share class.
The earnings report by Meta includes the following:
- Revenue: $64.60 billion, representing a year-over-year increase of 26%, exceeding expectations of about $63.4 billion.
- Net income: $9.86 billion or $3.83 per diluted share, against $2.71 billion in the same quarter last year.
- Operating income: $12.99 billion, down 37% from the prior year.
- Capital expenditures: $34.91 billion compared to $31.08 billion in the previous quarter.
- Free cash flow: -$2.12 billion, according to StockStory.
“The company reported lower than expected earnings per share of $5.46 due to a $9.89 billion legal charge. Excluding the charge, the results would have surpassed expectations significantly.”
Meta narrowed the lower range of its capital expenditure outlook for 2026 from $130 billion to $145 billion to $135 billion to $145 billion. On the other hand, the company raised the full-year expense outlook by $2 billion to $175 billion to $179 billion due to the accounting charge for the lawsuit. The estimate for Meta’s capital expenditure was expected to be around $138 billion.
As for the Reality Labs division, Meta expects losses to be between $18 billion and $19 billion in 2026 and $15 billion in 2027. The company announced that it will reallocate some investment out of this division into AI projects. According to an industry source, the number of users of Meta’s Muse AI assistant in the United States and Canada is 10 million.
The most unique decision is the creation of a new class of non-voting Class C stock that will be done by Meta. For every Class A and Class B stock, the company will give out one Class C stock, which is similar to a two-for-one stock split without affecting the voting right. The amendment to the charter is set to become effective on January 19, 2027, with the trading of the new stock to begin in late January.
Meta noted that the new stock would enable the company to raise capital, make acquisitions and use it in the form of compensation of employees while retaining the voting rights of the existing stockholders. Mark Zuckerberg has been holding nearly all of the Class B stock as of April 1, 2023, controlling around 61% of the voting rights.
Also, Meta signed an agreement with Zuckerberg. According to CNBC, as part of the deal, he promised to stay in California for the next eight years.
According to the filings, he can sell up to 20% of his Class C shares right away. As analysts from Yahoo Finance say, this is an overhang as there will be more shares to issue in the future.
Meta's shares closed at $697.52 on Wednesday before this news became public. The 52-week range of the stock is from $520.26 in March to $779.82 on September 24. The stock rose by approximately 4% on October 12 as a result of its Muse Wonder AI models being launched.
But since then, all gains have been wiped out. YTD, before the current decline, the stock was up approximately 1.6%, while the S&P 500 rose approximately 12%.
Analysts remained positive despite the report. Barclays upgraded the price target to $880 from $780 while maintaining the Overweight rating, and Mizuho upgraded the price target to $950 from $750. BMO upgraded its price target to $685 from $580, while Scotiabank upgraded its price target to $650 from $600.
The average price target for Yahoo Finance is around $833, where the target range is between $600 and $1,050.
A few companies highlighted the company's robust performance in advertising along with the future growth potential of Muse. Some companies mentioned that increasing capex and legal expenses will remain a headwind for profit growth.
Investors have to consider several factors in their analysis. The capital expenditures have almost doubled from what they were one year back, and free cash flows are negative.
Another concern is the high volatility of the stock, as the stock has made 16 changes of more than 5% in one year as per StockStory. The third risk is related to legal concerns, which can be seen from the $9.9 billion expense.
Meta is also likely to release its Form 8-K filing as well as information statement with further insights into the share structure.
It will be interesting to see how the stock performs into January when the Class C shares will start trading as well as if capital expenditures keep rising in 2027. Earnings for the fourth quarter will be released by the company at the beginning of next year.
