Why Meta Stock Is Down Big Today
Key Points
Meta's Q3 revenue and adjusted earnings both beat expectations, but expenses and capital expenditures grew faster than sales.
Management raised its 2025 capital-expenditure outlook and warned that 2026 spending will grow at an even faster rate.
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Meta Platforms (NASDAQ: META) stock dropped as much as 12.1% on Thursday after the company reported strong third-quarter revenue but paired it with a forecast for significant growth in spending and capital expenditures in 2026, along with a large one-time tax charge. This plan for aggressive spending puts increased pressure on the social media company's massive infrastructure and AI (artificial intelligence) buildout to eventually translate into meaningful profit growth.
Management's outlook for massive spending, combined with the fact that shares have risen sharply year to date, was enough to trigger some profit-taking.
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Strong quarter, but costs jumped faster than revenue
Meta Platforms generated $51.2 billion in revenue for in Q3, up 26% year over year and about 8% above the $47.5 billion it posted in the second quarter. Growth was helped by a 14% rise in ad impressions and a 10% increase in ad pricing. Expense growth outpaced revenue growth, rising about 32% year over year, to $30.7 billion, and capital expenditures more than doubled, rising from $9.2 billion in the year-ago quarter to $19.4 billion.
A noncash tax charge tied to the "big, beautiful bill" cut reported earnings per share (EPS) to $1.05, but Meta said EPS would have been $7.25 without it, which would have topped the consensus analyst forecast for $6.71.
The big concern? 2026 spending forecasts
The main concern for Meta investors is found in management's outlook for 2026 spending. Chief Financial Officer Susan Li told investors in the company's third-quarter earnings call that 2026's total expenses will grow at a "significantly faster" percentage rate than in 2025 because of infrastructure, incremental cloud spending, and depreciation tied to this AI buildout. She also said 2026 capital expenditure dollar growth will be "notably larger" than in 2025.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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