Meta reported third-quarter 2026 results on Wednesday, October 21, after the close. Revenue: $64.60 billion, up 26% from the same quarter a year earlier. But costs rose 68%, mainly because of a $9.89 billion charge for the settlement with 52 attorneys general, and operating income fell 37% to $12.99 billion. Operating margin narrowed to 20%, half the 40% of the year-ago quarter.
There may be errors or inaccuracies. Found something that looks wrong? Write to me and I will fix it.
What was reported
| Q3 2026 | Q3 2025 | Change | |
|---|---|---|---|
| Revenue (millions of dollars) | 64,601 | 51,242 | +26% |
| Of which: advertising | 63,061 | 50,082 | +26% |
| Total costs and expenses | 51,613 | 30,707 | +68% |
| Operating income | 12,988 | 20,535 | -37% |
| Operating margin | 20% | 40% | -20 pts |
| Provision for income taxes | 3,141 | 18,954 | -83% |
| Effective tax rate | 24% | 87% | -63 pts |
| Net income | 9,860 | 2,709 | +264% |
| Diluted earnings per share (dollars) | 3.83 | 1.05 | +265% |
Source: Meta's third-quarter 2026 press release, October 21, 2026, filed with the SEC on Form 8-K as Exhibit 99.1.
The charge that explains the decline
In August 2026 the company announced a settlement with 52 attorneys general in the United States, resolving litigation over teen mental health and social media. The settlement provides for payments of up to about $18.59 billion, and $9.89 billion of it was recorded as a charge in the third quarter, inside general and administrative expenses. That line jumped to $14.86 billion, from $3.51 billion a year ago.
According to the company, excluding the charge operating income would have risen by $9.89 billion to $22.88 billion, diluted earnings per share would have been $7.40 instead of $3.83, and the effective tax rate would have fallen 7 points to 17%.
Note the comparison base for net income. It rose 264%, but this is not a story of operating improvement: the year-ago quarter carried an $18.95 billion tax provision and an 87% effective tax rate, which left net income of just $2.71 billion despite operating income of $20.54 billion. This year the tax provision is $3.14 billion. So operating income fell 37% while net income "rose" 264%, and both lines are correct.
The two segments
Family of Apps - Facebook, Instagram, Messenger, WhatsApp and the other services - posted revenue of $64.16 billion, versus $50.77 billion a year ago. But the segment's operating income fell to $17.12 billion, from $24.97 billion, because the legal charge was recorded inside it.
Reality Labs, the virtual and augmented reality business, posted revenue of $443 million - down from $470 million a year ago - and an operating loss of $4.13 billion, versus $4.43 billion. So the loss narrowed slightly while revenue fell. The company expects the segment's losses for full-year 2026 to total $18 billion to $19 billion, a decline versus 2025, and to narrow to around $15 billion in 2027.
On the advertising side: ad impressions rose 10%, and the average price per ad rose 14%. Family daily active people (DAP) averaged 3.64 billion in September 2026, up 3%.
Capital spending, and the cash flow that flipped
Here is the number that deserves attention. Capital expenditures in the quarter, including principal payments on finance leases, reached $34.91 billion. Purchases of property and equipment alone were $33.94 billion, up 80% from $18.83 billion a year ago.
Cash flow from operating activities rose to $32.79 billion, from $30.00 billion. But because capital spending is larger than it, free cash flow was negative $2.12 billion - versus positive $10.63 billion in the year-ago quarter. Year to date free cash flow stands at $11.05 billion, versus $29.51 billion in the first nine months of 2025.
On the balance sheet: property and equipment, net, reached $253.22 billion, from $176.40 billion at the end of 2025. Long-term debt rose to $80.92 billion, from $58.74 billion, after $24.91 billion of debt was raised year to date. Cash and cash equivalents fell to $11.22 billion, from $35.87 billion at the end of 2025, but marketable securities rose to $71.23 billion - together $82.45 billion.
Two lines that changed quietly. First, share repurchases: zero in the quarter, versus $3.33 billion in the year-ago quarter and $26.25 billion in the first nine months of 2025. Not a single repurchase has been recorded since the start of 2026. The dividend continues - $1.36 billion in the quarter.
Second, headcount: 66,775, down 15% year over year. The release does not give a reason.
The new Class C share
The board approved the establishment of a new class of shares, Class C, with no voting rights, to be publicly listed, with an effective date of January 19, 2027. The decision followed the unanimous recommendation of a special committee of independent directors formed to evaluate the capital structure.
The board also declared a one-time stock dividend: one Class C share for each existing Class A and Class B share, to be paid after the amended certificate of incorporation takes effect. According to the release, after the payment date the Class A share price is expected to reflect the effect of a two-for-one stock split. The stock dividend does not change any shareholder's voting power.
The reasons the committee cited: creating a class of shares to be used for raising capital, employee compensation and acquisitions, in an industry where the scale of required investment is large; and continuing the model in which the founder leads the company. The company also entered into an agreement with Mark Zuckerberg covering his sales of the Class C shares he receives, his service at the company, and the conditions for future stock dividends. Moelis & Company served as independent financial advisor to the special committee, and Morgan Stanley as financial advisor to Meta.
Guidance
For the fourth quarter the company guides revenue of $73 billion to $76 billion, assuming foreign currency is about a 1% headwind to the growth rate. Full-year expense guidance was raised to $175 billion to $179 billion, to incorporate the legal charge. Excluding it, the company continues to expect 2026 operating income to be above 2025.
Capital expenditures for 2026, including principal payments on finance leases, are expected in a range of $135 billion to $145 billion - narrowed from the prior range of $130 billion to $145 billion. The fourth-quarter tax rate is expected between 15% and 17%.
For 2027 the company is not providing revenue guidance, but writes that it expects to continue investing aggressively, and that it is positioned to sustain strong revenue growth through the year.
The stock
The report was published after the close on Wednesday. The last close before the report: $697.52 on Wednesday, October 21, up 0.47% from the prior close. The trading reaction to the report falls in the after-hours session and in Thursday's session, October 22. I was not able to verify that day's close at the time of writing, so I am not reporting it - the data provider reached its daily request limit. A figure that has not been verified does not get written, and I will update it when I have it.
For context: on September 24 the stock closed at $777.59, so Wednesday's close is about 10% below it.
הזווית שלי
דעה אישית של אילן אברמוב - לא ייעוץ ולא המלצה
What catches my attention here is not the legal charge. A one-time charge of $9.89 billion is large, but it is flagged, explained, and the company spelled out exactly what earnings would have been without it. What catches my attention is two lines that are not one-time: the negative free cash flow, and the headcount.
Capital spending in the quarter was $34.91 billion - more than cash flow from operations, $32.79 billion. That is why free cash flow flipped negative. This is not the mark of a company in distress; it is the mark of a company that chose to spend more on infrastructure than it generates, and to fund that choice with $24.91 billion of debt raised year to date and a full stop to share repurchases. The range for all of 2026, $135 billion to $145 billion, says this is not an unusual quarter.
And at the same time, headcount fell 15% year over year. That is an unusual combination: capital spending doubling, and the workforce shrinking.
There are two ways to read this, and both fit the same numbers. One, this is a planned reshaping of the business - fewer people, more compute, and advertising revenue growing 26% shows the core was not harmed. Two, Reality Labs posted falling revenue while its losses continue, and the negative free cash flow means the return on this spending has not yet been measured.
What I will follow: whether free cash flow returns to positive in the fourth quarter, and what happens to Reality Labs revenue - a segment whose revenue fell while the company's capital spending doubled.
(To be clear: this is my personal opinion only. Nothing here is a recommendation to take any action, and there is no forecast here of the price of any security.)
Ilan Abramov, the author, or anyone on his behalf may hold some of the securities or funds mentioned in this article.
