Meta’s stock price experienced a rise of over 4% in early after-hours trading on Wednesday. This increase followed the company’s impressive report of a 26% rise in quarterly revenue and the announcement of a new stock class designed to support its significant investments in artificial intelligence.
As of 4:05 p.m. Wednesday, shares of the social media giant had climbed to $726, a roughly $30 increase from the previous closing price of $697.52.
This surge coincided with the company reporting third-quarter revenue of $64.6 billion, a notable rise from $51.2 billion the same period last year. Advertising revenue also saw a healthy increase of 26%, reaching $63.1 billion.
The California-based firm is also projecting fourth-quarter revenue between $73 billion and $76 billion while indicating plans for continued aggressive AI spending through the next year.
Mark Zuckerberg expressed confidence in their strategy, stating, “Our investments are paying off, the core business is strong, and we’re seeing velocity across the board.”
Additionally, Meta noted that advertising impressions across its platforms, including Facebook and Instagram, grew by 10% compared to the previous year, with ad prices increasing by 14%.
Net income for the company reached $9.86 billion, or $3.83 per diluted share, a substantial rise from $2.71 billion, or $1.05 per diluted share, in the same quarter last year. However, it is worth mentioning that the earnings were impacted by nearly a $10 billion charge resulting from a legal settlement.
Meta accounted for a charge of $9.89 billion associated with an August agreement involving 52 state attorneys general to settle lawsuits concerning the mental health impacts of social media on teens. The total settlement is expected to amount to about $18.59 billion.
This legal charge led to a 37% drop in operating income, which stood at $12.99 billion, despite growing sales. Without the legal charge, Meta’s operating profit would have been approximately $22.88 billion, translating to diluted earnings of $7.40 per share.
Interestingly, the company experienced a reduction in income tax provision, which was $3.14 billion, down from $18.95 billion in the same quarter of the prior year.
Significant Changes Ahead
In addition, Meta announced a major restructuring of its capital, introducing a new class of non-voting shares that could fund its AI initiatives while maintaining Zuckerberg’s leadership role.
The board has approved the introduction of publicly traded, non-voting Class C shares, set to come into effect on January 19, 2027. Existing Class A shares will continue to be traded on Nasdaq, while the new Class C shares will not carry voting rights.
As part of this plan, shareholders will receive a non-voting Class C share for each Class A or Class B share they own, with further details on the distribution date still to be determined. This move is anticipated to resemble a two-for-one stock split for the market price of its Class A shares without altering voting power among shareholders.
The announcement aligns with Meta’s increasing investment in artificial intelligence, with capital expenditures totaling $34.91 billion in the third quarter alone. They now forecast annual capital expenses between $135 billion and $145 billion, tightening their earlier estimate of $130 billion to $145 billion.
This significant spending has led to a negative quarterly free cash flow, amounting to $2.12 billion, contrasting with the positive free cash flow of $10.63 billion from the previous year.
Meta has noted that their investments in AI are starting to yield positive results, enhancing advertising revenue through better recommendations and increased engagement.
“We hit major milestones this quarter toward delivering personal superintelligence for everyone — including launching Muse and Muse Wonder, our first frontier model,” Zuckerberg stated.
Furthermore, the company intends to redirect funding away from its Reality Labs division, which is focused on virtual and augmented reality, in favor of its AI projects.
