Meta stock surges on strong earnings report; tech giant unveils new shares to bankroll AI spending
Meta's shares rose more than 4% in early after-hours trading on Wednesday after the company that owns Facebook reported that its quarterly revenue had grown by 26%. Meta also announced plans to create a new type of stock that could help pay for its large investments in artificial intelligence (AI).
At 4:05 p.m. Wednesday, shares of the social media company had risen 4% to $726 in after-hours trading. That was nearly $30 more than their regular closing price of $697.52.
The rise came after Mark Zuckerberg's company reported revenue of $64.6 billion for the third quarter. That was 26% more than the $51.2 billion it earned during the same period a year earlier. Revenue from advertising also rose 26%, reaching $63.1 billion.
The technology company, based in Menlo Park, California, expects revenue in the fourth quarter to reach between $73 billion and $76 billion. It also indicated that it plans to keep spending heavily on AI next year.
“Our investments are paying off, the core business is strong, and we’re seeing velocity across the board,” Zuckerberg said in a statement.
Meta said the number of ads shown across its apps, including Facebook and Instagram, rose 10% from a year earlier. The average price paid for each ad increased by 14%.
The company reported net income of $9.86 billion, or $3.83 for each diluted share. A year earlier, net income was $2.71 billion, or $1.05 for each diluted share.
However, Meta's earnings were reduced by a charge of nearly $10 billion linked to a major legal settlement.
Meta recorded a $9.89 billion charge linked to an agreement reached in August with attorneys general from 52 states. The agreement was intended to settle lawsuits about social media and its effects on teenagers' mental health.
The agreement requires payments that could total about $18.59 billion.
The charge helped cause operating income to fall 37% to $12.99 billion, even though sales continued to grow.
Meta said that without the legal charge, its operating profit would have been $22.88 billion and its diluted earnings per share would have been $7.40.
The company's results also benefited from a much smaller income tax expense. It was $3.14 billion, down from $18.95 billion in the same quarter a year earlier.
A major change
Meta also announced a major change to how its stock is organized. It plans to create a new type of share that does not give its owner voting rights. The move could help pay for its AI plans while allowing Zuckerberg to remain in control of the company.
The company's board approved plans to create publicly traded Class C shares without voting rights. The new arrangement is scheduled to begin on Jan. 19, 2027.
Meta's existing Class A shares trade on Nasdaq. The new Class C shares will not give their owners any voting rights.
Under the plan, shareholders will receive one nonvoting Class C share for each Class A or Class B share they own. Meta has not yet decided the date when the shares will be distributed.
Meta said this distribution is expected to work like a two-for-one stock split for the market price of its Class A shares. It will not change shareholders' voting power.
The announcement comes as Meta increases its spending on artificial intelligence.
Meta spent $34.91 billion on capital investments during the third quarter. This amount included payments on finance leases.
The company now expects its total capital spending for the full year to be between $135 billion and $145 billion. Its earlier forecast was between $130 billion and $145 billion.
The spending helped push Meta's free cash flow for the quarter below zero. The company had an outflow of $2.12 billion, compared with positive free cash flow of $10.63 billion a year earlier.
Meta said its AI investments were already helping it earn more from advertising. The technology was improving ad recommendations, encouraging people to spend more time using its apps and helping the company earn more money from its services.
“We hit major milestones this quarter toward delivering personal superintelligence for everyone — including launching Muse and Muse Wonder, our first frontier model,” Zuckerberg said.
The company also plans to move some investment away from its Reality Labs division, which develops virtual reality and augmented reality products, and put more money into AI.