Meta’s revenue surges to $64.6 billion, but billions in settlements and skyrocketing AI spending turn screws on profit, free cash flow

Meta Platforms reported a 26% increase in revenue for the third quarter, reaching $64.6 billion, surpassing analyst expectations of $63.3 billion. Despite the revenue growth, operating income dropped by 37% to $13 billion, primarily due to a $10 billion settlement related to the impact of its products on teen mental health. The company also allocated capital towards AI infrastructure and services, investing heavily in AI development while re-routing funds from its struggling virtual reality division, Reality Labs.

Meta's operating margin was halved by legal payments and $34.9 billion in capital expenditures, leading to negative free cash flow amounting to $2.1 billion. Despite the setbacks, Meta's shares saw a 5% rise in after-hours trading, with CEO Mark Zuckerberg expressing confidence in the company's core business and in the performance of its AI tools.