Menlo Park company beats on revenue but misses on profit, and guides third quarter below Wall Street’s number
Meta Platforms Inc. reported second-quarter revenue of $60.80 billion on Wednesday, a 28 percent increase from a year earlier, but the strength of its advertising business was overshadowed by a collapse in free cash flow and a profit figure well short of what analysts had modeled. Shares fell more than 11 percent in extended trading.
Net income slipped to $15.85 billion and diluted earnings per share came in at $6.18 — against the $7.22 analysts polled by LSEG had projected. Revenue itself topped the $60.17 billion consensus.
The cash flow number
Cash flow from operating activities was $31.86 billion for the quarter. Free cash flow was $784 million. Three months earlier, that same figure stood at $12.39 billion.
The difference is capital spending. Meta laid out $31.08 billion on capital expenditures in the quarter — roughly double the year-ago pace — as it builds out data center capacity for artificial intelligence training and inference. The company holds $90.26 billion in cash, equivalents and marketable securities against long-term debt of $83.66 billion.
The pattern echoed Alphabet, which reported last week that its free cash flow had turned negative for the first time on record. Unlike Microsoft, Amazon and Alphabet, Meta has no established cloud-computing business generating revenue off that infrastructure — a gap Chief Executive Mark Zuckerberg signaled the company intends to close by leasing spare capacity to outside customers. He told investors the company is fielding offers for compute at meaningful premiums to what it paid.
Guidance was the trigger
Management guided third-quarter revenue to a range of $61 billion to $64 billion — a $62.5 billion midpoint that landed below what the market wanted to see.
Full-year expenses were revised to $165 billion to $169 billion, up from a prior floor of $162 billion, with the company noting $2.4 billion in legal charges recognized in the quarter. Capital expenditure guidance for 2026 was narrowed to $130 billion to $145 billion, and the company reiterated that it expects full-year operating income to exceed 2025.
Meta also flagged ongoing legal and regulatory proceedings, including youth-related litigation that could produce a material loss.
The ad engine is not the problem
Stripped of the spending question, the core business performed. Advertising revenue rose 27 percent to $59.36 billion. Ad impressions across the Family of Apps increased 14 percent while the average price per ad rose 12 percent — growth coming from both more inventory sold and higher rates, rather than one carrying the other.
Family daily active people averaged 3.60 billion in June, up 3 percent year over year. Headcount stood at 75,472 as of June 30, down 1 percent from a year earlier.
The Reality Labs division, which houses the company’s headset and metaverse work, lost more than $4.6 billion in the quarter.
Zuckerberg framed the quarter around AI accelerating the existing business while opening enterprise opportunities, saying he is optimistic about what lies ahead.
Why it matters for advertisers and small business
For the tri-state small businesses that buy Meta advertising, the operative number is the 12 percent increase in average price per ad. Meta is charging more per placement, and it is doing so while under pressure to show returns on a buildout that has consumed nearly all of its free cash flow. Advertisers should plan on that cost line continuing to climb rather than flattening — the capital committed has to be earned back somewhere, and the ad auction is where Meta earns.
The second consideration is the enterprise pivot. If Meta genuinely begins selling compute capacity to outside businesses, it enters a market currently split among Amazon, Microsoft and Google. More competition among providers is generally good news for anyone buying cloud services. But that business does not exist yet at scale, and until it does, the advertising base is carrying the entire cost of the AI program.
What Wednesday established is that investors have moved from rewarding AI spending to questioning it. Alphabet took the same treatment last week. Meta, without a cloud business to point to, took it harder.
JBizNews Desk | Menlo Park, Calif.
© JBizNews.com All Rights Reserved. Reproduction or distribution without written permission is prohibited.
