Meta Platforms spent $34.9 billion on capital projects in the third quarter, more than the $32.8 billion its operations generated, leaving free cash flow at negative $2.1 billion. Revenue rose 26 per cent to $64.6 billion, the company said in its earnings release on Wednesday.
A year earlier free cash flow was positive $10.6 billion. That swing, more than the revenue line, is what changed this quarter. Chief Executive Mark Zuckerberg said in the release that "our investments are paying off, the core business is strong, and we're seeing velocity across the board."
What did Meta report?
Meta reported revenue of $64.60 billion, up 26 per cent, and net income of $9.86 billion, or $3.83 a diluted share. Costs and expenses rose much faster than sales, up 68 per cent to $51.61 billion, so operating income fell 37 per cent to $12.99 billion. Headcount was 66,775, down 15 per cent from a year earlier.
| Measure | Q3 2026 | Change or note | |---|---|---| | Revenue | $64.60 billion | Up 26 per cent | | Costs and expenses | $51.61 billion | Up 68 per cent | | Operating income | $12.99 billion | Down 37 per cent | | Operating income excluding legal charge | $22.88 billion | Meta's figure | | Capital expenditures | $34.91 billion | Includes finance lease principal | | Operating cash flow | $32.79 billion | Was $30.00 billion | | Free cash flow | -$2.12 billion | Was $10.63 billion |
How big was the legal charge?
The charge was $9.89 billion, recorded in general and administrative expenses, for an agreement announced in August with 52 state attorneys general to resolve litigation over teen mental health and social media. The agreement provides for payments of up to about $18.59 billion, according to Meta's Form 10-Q.
The 10-Q sets out the schedule. About $12.7 billion is payable to participating states in annual instalments over 10 years, and $75 million goes to a committee of the settling states for investigation and litigation costs. A further $5.3 billion or so is contingent: it becomes payable state by state only if industry peers such as YouTube and TikTok adopt similar teen protections and each peer with annual profits above $10 billion makes matching payments. Those conditions were not met at 30 September, so Meta has not accrued the contingent amount. About $500 million of the total relates to separate privacy claims.
Excluding the charge, Meta puts operating income at $22.88 billion and diluted earnings at $7.40 a share. By this publication's arithmetic, that is an operating margin of about 35 per cent.
Where is the money going?
Into computing capacity. Meta narrowed its 2026 capex range to $135 billion to $145 billion, from $130 billion to $145 billion, and raised its full-year expense outlook to $175 billion to $179 billion to include the charge. The release says the capacity coming online lets it allocate resources across model training, growth in the core business and new products.
The obligations behind the spending are larger than the spending. The 10-Q says Meta had $454.52 billion of non-cancelable contractual commitments at 30 September, about $45.85 billion of it due in the rest of 2026 and $121.41 billion in 2027. It also lists contingent obligations to buy up to $14.72 billion of cloud capacity over five years, an amount that may fall if the provider resells the capacity to others.
Meta ended the quarter with $82.45 billion in cash and marketable securities and $83.67 billion of debt, counting the current portion. By our arithmetic, that is net debt of about $1.2 billion. In May it issued $25 billion of senior unsecured notes in six series, the 10-Q says. It bought back no shares in the quarter, against $3.33 billion a year earlier, and declared dividends of $1.40 billion.
What does Meta say it is buying?
Zuckerberg said in the release that the quarter's milestones included "launching Muse and Muse Wonder, our first frontier model," on the way to what he calls "personal superintelligence for everyone." This publication covered the pricing of Muse Wonder when it launched on 12 October.
On next year, the release says Meta is "still developing our budget and capacity plans for next year" and is not giving a full-year 2027 revenue outlook, though it expects to "sustain strong overall revenue growth throughout 2027." It expects Reality Labs losses to "narrow next year to around $15 billion."
The board has also approved a non-voting Class C common stock, effective 19 January 2027. Holders will get one Class C share for each Class A or Class B share, and Meta expects the Class A price to reflect the effect of a two-for-one stock split.
What to watch next
The fourth-quarter report, when the 2027 capex figure is due. Meta guided fourth-quarter revenue to $73 billion to $76 billion. If that revenue arrives while capex holds near this quarter's pace, free cash flow can turn positive again. If spending rises further next year, the $121 billion of commitments falling due in 2027 will be paid partly from the balance sheet. Compare Tesla's quarter, in which capital spending came in well below forecasts and free cash flow was positive.
Quarterly results, cash flow, cash and marketable securities, the charge and the figures excluding it, the 2026 and fourth-quarter outlook, the 2027 language, the Class C share and the Zuckerberg quotation come from Meta's earnings release of 21 October 2026, filed as Exhibit 99.1 to its Form 8-K. The terms and payment schedule of the attorneys general agreement, the contractual and contingent commitments, the May note issue, debt, dividends declared and the absence of repurchases come from Meta's Form 10-Q for the quarter ended 30 September 2026. Quotations from the earnings call have been left out because Meta had not posted its own transcript when this was written. The 35 per cent adjusted operating margin and the roughly $1.2 billion of net debt are this publication's arithmetic. The analysis is our own.
Topics technologyAIearningsfree cash flow
