Meta beats on revenue and splits its stock with nonvoting shares to raise capital

Meta Platforms Inc. reported stronger than expected third-quarter revenue and earnings, leading to a 2% rise in shares after the market closed. The company's revenue came in at $64.60 billion, reflecting a 26% increase year-over-year. Earnings per share were $3.83, up from $1.05 a year prior. However, these results were heavily influenced by a $9.89 billion charge related to a settlement with 52 attorneys general over concerns about teen mental health and social media use.

Excluding this charge, earnings would have been $7.40 per share. Operating margins narrowed to 20% from 40% due to a 68% rise in total costs and expenses to $51.61 billion. Net income still grew to $9.86 billion, driven by a one-time tax benefit. Advertising revenue totaled $63.06 billion, with a 14% increase in average price per ad and 10% more impressions.

Meta's user base grew to an average of 3.64 billion daily active users across its apps, a 3% increase. Capital expenditures totaled $34.91 billion, surpassing cash generated by operations by $2.12 billion, resulting in negative free cash flow of $2.12 billion. Headcount decreased to 66,775, a 15% drop following May's job cuts. Founder and CEO Mark Zuckerberg highlighted Meta's investments, including the launch of the Muse personal agent and Muse Wonder model, noting that more than 10 million people in the U.S. and Canada had set up Muse accounts within six weeks.

The company plans to list the new nonvoting Class C shares on the Nasdaq, effective January 19, 2027. This move aims to raise capital, compensate employees, and fund acquisitions. Zuckerberg's control remains largely unchanged, with about 60.6% of voting power and a Founder Alignment Agreement, which restricts the sale of Class C shares to 20% at a time.

The shares are intended to help Meta raise funds while limiting Zuckerberg's voting power by converting Class B shares into Class A when necessary. Meta expects revenue between $73 billion and $76 billion for the fourth quarter, with capital expenditures projected between $135 billion and $145 billion, slightly higher than the range forecast for the full year.

The virtual and augmented reality hardware unit, Reality Labs, is expected to narrow its losses to about $15 billion next year as the focus shifts towards artificial intelligence.