Meta revenue rises 26% to $64.6 billion; legal charge cuts operating income 37%

Meta Platforms (Nasdaq: META) reported third-quarter revenue of $64.60 billion, up 26% from a year earlier, but operating income fell 37% to $12.99 billion after a $9.89 billion charge to settle youth-related litigation, according to its earnings release.

What happened

Costs and expenses rose 68% to $51.61 billion. Operating margin was 20%, against 40% a year earlier. Net income was $9.86 billion, or $3.83 per diluted share, compared with $2.71 billion, or $1.05, in the third quarter of 2025. The company's effective tax rate was 24%, against 87% a year earlier.

In August, Meta announced an agreement with 52 state attorneys general to resolve litigation related to teen mental health and social media, with payments of up to approximately $18.59 billion. The quarter's costs include a $9.89 billion charge related to the agreement. Excluding the charge, Meta said, operating income would have been $22.88 billion and diluted earnings per share $7.40.

Family daily active people, Meta's measure of users across its apps, averaged 3.64 billion in September, up 3% from a year earlier. Ad impressions rose 10% and the average price per ad rose 14%. Headcount was 66,775, down 15%.

Capital expenditures, including principal payments on finance leases, were $34.91 billion. Operating cash flow was $32.79 billion, and free cash flow was negative $2.12 billion. Cash and marketable securities were $82.45 billion.

"We hit major milestones this quarter toward delivering personal superintelligence for everyone - including launching Muse and Muse Wonder, our first frontier model," said founder and chief executive Mark Zuckerberg.

Outlook

Meta expects fourth-quarter revenue of $73 billion to $76 billion. It expects 2026 capital expenditures of $135 billion to $145 billion, narrowed from a prior range of $130 billion to $145 billion, and 2026 total expenses of $175 billion to $179 billion. For 2027, it said it is "still developing our budget and capacity plans" but expects "to continue investing aggressively to support both our core business and emerging AI initiatives."

A new class of shares

The release also announced a new class of non-voting Class C common stock. In a filing with the Securities and Exchange Commission, Meta said its board approved the change on October 19 and shareholders approved it by written consent on October 20. The charter amendment takes effect on January 19, 2027.

Meta will pay a one-time stock dividend of one Class C share for each Class A and Class B share, according to the filing. Yahoo Finance described the move as a 2-for-1 stock split.

Under a Founder Alignment Agreement signed on October 20, 20% of the Class C shares Zuckerberg and certain permitted transferees receive can be freely sold. The other 80% can be sold only if the group also sells, or converts, a matching number of voting Class A or Class B shares, which would reduce Zuckerberg's voting power, the filing says.

Market reaction

Meta shares fell nearly 7% on Thursday, Yahoo Finance reported, as the Nasdaq Composite fell 2.6%.

What to watch

The charter amendment and the dividend are scheduled to take effect from January 19, 2027, according to the filing; the record and payment dates will be set by the board.

Meta said it has "a number of youth-related trials scheduled in the coming months in the U.S." and that it continues to monitor legal and regulatory matters that could significantly affect its results.