Meta Platforms META reported third-quarter 2026 adjusted earnings of $7.4 per share, which increased 2.1% year over year, beating the Zacks Consensus Estimate by 13.50%. Revenues jumped 26% year over year to $64.6 billion, surpassing the consensus mark by 1.88%.
Strong advertising demand, AI-driven engagement and improving monetization supported revenue growth. Ad impressions increased 10% year over year, while the average price per ad advanced 14%. However, higher infrastructure spending and legal expenses pressured operating profitability.
META’s Ad Business Fuels Revenue Growth
Family of Apps revenues, which accounted for 99.3% of total revenues, increased 26.4% year over year to $64.16 billion. Advertising revenues rose 25.9% to $63.06 billion, supported by healthy engagement, user growth and ad-load optimization across Meta’s platforms.
Family of Apps other revenues surged 59% year over year to $1.1 billion, primarily driven by WhatsApp paid messaging and subscriptions.
Meta Platforms, Inc. Price, Consensus and EPS Surprise
Meta Platforms, Inc. price-consensus-eps-surprise-chart | Meta Platforms, Inc. Quote
Reality Labs revenues declined 5.7% to $443 million as lower Quest headset sales more than offset strong growth in AI glasses revenues.
Meta’s AI Investments Boost User Engagement
Family daily active people averaged 3.64 billion in September, up 3% year over year. Average revenue per person increased to $17.72 from $14.46 in the year-ago quarter, reflecting improving monetization across the company's ecosystem.
Instagram global time spent per user reached an all-time high, growing at a double-digit rate. Facebook Reels engagement also achieved record levels, while Threads time spent per user increased more than 20%. AI-powered recommendation improvements lifted Instagram Reels viewing time by more than 4%.
Meta’s advertising systems continued delivering measurable performance gains. The company’s expanded GEM ranking model increased offsite campaign conversions by 1.7% and app advertising conversions by 9.6%. Nearly 10 million advertisers used generative AI creative tools during the reported quarter.
Meta’s Muse Expansion Opens New Revenue Opportunities
Meta launched its Muse personal agent and Muse Wonder frontier AI model during the reported quarter. More than 10 million users in the United States and Canada adopted Muse within approximately six weeks, with about 25% using the service on a given day.
Shopping emerged as Muse’s leading use case, accounting for more than a quarter of active users, with average purchases exceeding $200. Meta plans to monetize the platform through commerce fees, premium subscriptions and enterprise services.
The company expects Muse’s computing efficiency to improve more than tenfold over the coming year. These improvements could support broader adoption while reducing the cost of serving individual users.
META’s Rising Costs Weigh on Operating Margins
Total costs and expenses surged 68.1% year over year to $51.61 billion. The increase included a $9.89 billion charge related to the August 2026 agreement with U.S. state attorneys general concerning teen mental health litigation.
Operating income declined 36.8% year over year to $12.99 billion, while operating margin contracted to 20% from 40% reported in the year-ago quarter. Excluding the legal charge, operating income would have increased 11% year over year. Infrastructure investments, depreciation, cloud spending and third-party AI token costs remained major expense drivers.
Family of Apps operating income fell 31.4% year over year to $17.12 billion. Reality Labs operating loss narrowed to $4.13 billion from $4.43 billion, reflecting improving segment profitability despite continued investment.
META’s Cash Flow Reflects Heavy AI Infrastructure Spending
Meta ended September with $82.45 billion in cash, cash equivalents and marketable securities. Total debt stood at approximately $83.66 billion.
Cash flow from operating activities totaled $32.79 billion, compared with $30 billion a year earlier. Capital expenditures, including finance lease principal payments, increased to $34.91 billion from $19.37 billion, resulting in negative free cash flow of $2.12 billion.
The company also announced plans to establish a new non-voting Class C common stock, with shareholders receiving one new share for each existing share. The distribution is expected to effectively result in a two-for-one stock split in January 2027.
Meta’s Outlook Signals Sustained Growth and Investment
For the fourth quarter of 2026, Meta expects revenues between $73 billion and $76 billion. The guidance incorporates an approximately 1% foreign currency headwind to year-over-year growth.
The company raised its 2026 expense outlook to $175-$179 billion, incorporating the litigation charge. Capital expenditure guidance was narrowed to $135-$145 billion from $130-$145 billion.
Meta expects Reality Labs operating losses of $18-$19 billion in 2026, a decline compared with 2025. Reality Labs losses are expected to further narrow to roughly $15 billion in 2027.
The company anticipates strong revenue growth through 2027, supported by advertising improvements, AI advancements and emerging monetization opportunities.
Zacks Rank & Upcoming Earnings to Consider
Currently, Meta Platforms carries a Zacks Rank #4 (Sell).
Shopify SHOP, Seagate STX and Teradyne TER are some better-ranked stocks in the broader Zacks Computer and Technology sector that are set to report their earnings results over the next couple of weeks. Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Seagate is set to report its first-quarter fiscal 2027 results on Oct. 27, while Teradyne is scheduled to report its third-quarter 2026 results on the same date. Shopify is set to report its third-quarter 2026 results on Nov. 3.
Shares of Seagate, Teradyne and Shopify have jumped 153.1%, 78.5% and 8.3%, year to date, respectively.
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This article originally published on Zacks Investment Research (zacks.com).