Meta Platforms (NASDAQ:META) shares fell more than 8% in premarket trading on Thursday after the company issued third-quarter revenue guidance that disappointed investors, despite reporting revenue ahead of expectations for the second quarter.
The social media giant also posted earnings that missed Wall Street forecasts as rising legal, restructuring and infrastructure costs weighed on profitability.
Higher Costs Lead to Earnings Miss
Meta reported second-quarter earnings of $6.18 per share, below analysts’ expectations of $7.17.
Revenue climbed 28% year over year to $60.8 billion, exceeding the consensus estimate of $60.19 billion, supported by continued strength in its advertising business.
However, second-quarter profit declined 14% from a year earlier as expenses increased significantly.
Total costs and expenses rose 55% to $42.03 billion, including $2.4 billion in legal charges and $1.18 billion in severance costs following the workforce reductions announced in May.
Revenue Outlook Disappoints Investors
For the third quarter, Meta forecast revenue of between $61 billion and $64 billion, compared with analysts’ consensus estimate of $63.24 billion.
The company also increased the lower end of its full-year expense guidance to reflect the legal costs recognised during the second quarter.
Bank of America analysts said the market reaction reflected investor “concerns on Meta’s investment direction.”
They added, “The expense raise, which includes ramping SBC, was disappointing given recent layoffs, but reflected significant costs that won’t recurring in 2027.”
AI Investment Continues to Drive Growth Strategy
Meta’s latest results highlighted the balance between accelerating investment in artificial intelligence and maintaining near-term profitability.
Advertising remained a key growth driver, with ad impressions increasing 14% year over year and the average price per advertisement rising 12%.
The company’s Family daily active people metric also grew 3% to 3.60 billion in June.
Chief Executive Mark Zuckerberg said artificial intelligence is accelerating the company’s core business, supporting new products and creating additional enterprise opportunities, while noting that the benefits are already beginning to emerge.
Capital Spending Remains Elevated
Meta invested $31.08 billion in capital expenditures during the quarter as it continued expanding its AI infrastructure.
Free cash flow fell sharply to $784 million, compared with $8.55 billion in the same period last year.
Ryan Lee, SVP of Product and Strategy at Direxion, said, “Although Meta did not follow Google into negative free cash flow, a print below $1 billion is jarring and reflects the cash burn investors have seen quarter after quarter. Another explosive quarter of capital spending could have ripple effects across the broader AI supply chain, particularly semiconductor companies that have recently fallen into a bear market. Meta may be paying the price, but its continued infrastructure buildout could provide a bullish catalyst elsewhere.”
Meta also narrowed its 2026 capital expenditure forecast to between $130 billion and $145 billion, compared with its previous range of $125 billion to $145 billion.
In addition, the company raised the lower end of its full-year expense outlook to a range of $165 billion to $169 billion, reflecting the legal charges incurred during the second quarter.