Meta Q3 Earnings: Revenue Up 26% as $9.9B Legal Charge Hits Profit
Meta Q3 earnings: revenue rose 26% to $64.6 billion, but a $9.89 billion legal charge cut operating income 37% as AI capex guidance hit $135-145 billion.
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Meta Platforms reported third-quarter 2026 revenue of $64.6 billion on October 21, up 26% from a year earlier, as its advertising business kept growing quickly. But a $9.89 billion legal charge tied to teen mental health litigation pushed operating income down 37%, and investors focused on rising AI spending: shares fell about 3% the next morning. Meta also guided fourth-quarter revenue to $73 billion to $76 billion, above Wall Street’s expectations.
Meta Q3 2026 earnings at a glance
Here are the headline figures from Meta’s earnings release:
- Revenue: $64.6 billion, up 26% year over year. Advertising accounted for $63.06 billion, according to Techloy.
- Costs and expenses: $51.6 billion, up 68%, including the legal charge.
- Operating income: $13.0 billion, down 37%, for an operating margin of 20% versus 40% a year earlier.
- Net income: $9.86 billion, or $3.83 per diluted share, compared with $2.71 billion a year earlier.
- Excluding the charge: Operating income would have been $22.88 billion and diluted earnings $7.40 per share. Techloy reports analysts had expected $5.46.
User growth was steady. Daily active people across Meta’s apps averaged 3.64 billion in September, up 3%. Ad impressions rose 10% and the average price per ad climbed 14%.
What is the $9.89 billion legal charge?
The charge stems from an agreement Meta reached in August 2026 with 52 state attorneys general to resolve litigation over teen mental health and social media. Meta says the agreement provides for payments of up to about $18.59 billion, of which it recorded $9.89 billion as a charge in the third quarter.
The charge explains most of the gap between Meta’s strong sales and its weaker profit line. Its Family of Apps segment, which includes Facebook, Instagram and WhatsApp, posted operating income of $17.1 billion, down from $25.0 billion a year earlier.
How much is Meta spending on AI?
Capital expenditures, including finance lease payments, reached $34.91 billion in the quarter. That heavy investment turned free cash flow negative, at minus $2.12 billion, compared with a positive $10.6 billion a year earlier. 24/7 Wall St. reports Meta ended the quarter with $82.4 billion in cash and marketable securities against $83.7 billion in debt.
For full-year 2026, Meta narrowed its capital spending range to $135 billion to $145 billion, raising the low end from $130 billion. It also lifted total expense guidance to $175 billion to $179 billion to reflect the legal charge. Looking to 2027, Meta declined to give a full-year revenue outlook but said it expects to sustain strong revenue growth while continuing to invest heavily in AI.
Muse, superintelligence and Reality Labs
CEO Mark Zuckerberg tied the quarter to Meta’s AI ambitions. “We hit major milestones this quarter toward delivering personal superintelligence for everyone,” he said in the release, pointing to the launch of Muse, Meta’s personal AI agent, and Muse Wonder, which he called the company’s first frontier model. Techloy reports that more than 10 million people in the US and Canada have signed up for Muse, with about a quarter of them using it daily.
Reality Labs, Meta’s metaverse and hardware unit, lost $4.1 billion in the quarter, slightly narrower than the $4.4 billion loss a year earlier. Meta expects Reality Labs losses of $18 billion to $19 billion in 2026, shrinking to around $15 billion in 2027.
Other notable details
Meta’s headcount stood at 66,775 at the end of September, down 15% from a year earlier. The company made no share repurchases in the quarter or in the first nine months of 2026, though it paid $1.36 billion in dividends and dividend equivalents.
The release also announced a new non-voting Class C common stock, effective in January 2027, to be distributed to shareholders as a one-time stock dividend.
Why the stock fell
Despite beating on revenue and guidance, Meta shares slipped about 3% to $677.20 in morning trading on October 22, according to 24/7 Wall St., which attributed the drop to the higher AI spending outlook overshadowing the beat. The reaction underlines a question hanging over all of Big Tech this earnings season: how long investors will reward rapid revenue growth while capital spending races ahead of cash flow.
What happens next
Meta’s report lands as investors across the sector weigh soaring AI spending against revenue growth. For Meta itself, the next markers are its fourth-quarter delivery against the $73 billion to $76 billion target, any 2027 capital spending guidance, and further payments under the attorneys general settlement.