Meta (META.US) Q3 revenue up 26% year-over-year to $64.6 billion; nearly $10 billion in litigation expenses drag operating profit down 37%

Meta (META.US) released its Q3 2026 financial results after the U.S. market close on Wednesday. Data showed that the company's quarterly revenue was $64.601 billion, up 26% year-over-year; net income was $9.860 billion, up 264% year-over-year; and diluted earnings per share were $3.83, up 265% year-over-year. However, operating profit fell 37% year-over-year to $12.988 billion, and the operating margin dropped from 40% in the prior-year period to 20%. Meta's shares rose more than 7% at one point in after-hours trading. Meta said total costs and expenses in the third quarter surged 68% year-over-year to $51.613 billion, including a $9.89 billion charge recognized in connection with a settlement with 52 U.S. state attorneys general over litigation related to teen mental health and social media. Excluding that expense, the company's operating profit for the quarter would have reached $22.877 billion, and diluted earnings per share would have risen to $7.40. It is worth noting that the sharp increase in net income was mainly due to the low base formed by high income tax expenses in the prior-year period. Meta's income tax expense in the third quarter was $3.141 billion, far below $18.954 billion in the prior-year period, and the effective tax rate fell from 87% to 24%. By segment, Meta's Family of Apps revenue in the third quarter was $64.158 billion, of which advertising revenue was $63.061 billion, up about 26% year-over-year. Ad impressions in the quarter increased 10% year-over-year, and the average price per ad rose 14%. Reality Labs revenue was $443 million, down from $470 million in the prior-year period, with an operating loss of $4.129 billion. On user metrics, the average number of daily active users across Meta's Family of Apps reached 3.64 billion in September, up 3% year-over-year. On cash flow, Meta's operating cash flow in the third quarter was $32.786 billion, capital expenditures (including principal payments on finance leases) were $34.906 billion, and free cash flow was negative $2.120 billion. As of the end of September, the company held $82.449 billion in cash, cash equivalents and marketable securities. Looking ahead to the fourth quarter, Meta expects revenue to be between $73 billion and $76 billion. The company raised its full-year 2026 total expense forecast to $175 billion to $179 billion to account for the litigation expenses recognized in the third quarter; it also narrowed its full-year capital expenditure forecast range to $135 billion to $145 billion from the previous $130 billion to $145 billion. Meta expects Reality Labs' full-year loss this year to be between $18 billion and $19 billion, and expects it to narrow to about $15 billion in 2027. The company said it will continue to actively invest in AI infrastructure and new products, and expects advertising business improvements and new product opportunities brought by AI investments to support strong overall revenue growth in 2027. In addition, Meta announced that its board of directors has approved the establishment of non-voting Class C common stock intended for public listing, planned to take effect in January 2027. The company plans to implement a one-time stock dividend to existing holders of Class A and Class B common stock at a ratio of one Class C common share per share held. It is expected that after the distribution is completed, the market price of Class A common stock will reflect a split effect similar to a two-for-one stock split, but the voting rights of existing shareholders will not change as a result.