Meta Platforms shares dropped 7% as surging artificial intelligence spending commitments and a record negative free cash flow overshadowed better-than-expected third-quarter revenue, prompting the company to plan non-voting Class C shares to fund future expansion without diluting CEO Mark Zuckerberg’s control.
Market anxiety over massive technology investments hit Meta Platforms hard, pulling the stock down 7% to close at $648.85 following a record third-quarter revenue report. The sell-off reflected investor unease across Wall Street regarding whether capital-intensive data center builds will deliver returns.
Despite the market reaction, the company posted record third-quarter revenue of $64.60 billion according to financial reports, up 26% and beating the consensus estimate of $63 billion.
Capital Spending Climbs To $34.91 Billion With Negative Free Cash Flow
Capital spending reached $34.91 billion during the quarter surpassing operating cash flow of $32.79 billion. That dynamic pushed free cash flow into negative territory at $2.12 billion, marking the first such quarter for the company as a public entity.
To fund its ongoing technology buildout, Meta raised the lower end of its capital expenditure guidance to a range between $135 billion and $145 billion. Total spending commitments across cloud capacity arrangements, energy service agreements, and consumer hardware products climbed to $825 billion.
| Financial Metric | Third-Quarter Result | Analyst Consensus |
|---|---|---|
| Revenue | $64.60 billion | $63.00 billion |
| Diluted EPS | $3.83 | $3.56 |
| Capital Expenditures | $34.91 billion | Not Applicable |
| Free Cash Flow | -$2.12 billion | Not Applicable |
Class C Share Structure Protects Voting Control
To bridge the funding gap without issuing voting equity that would dilute insider power, Meta announced plans to issue new non-voting Class C shares to all Class A stockholders, effectively executing a 2-for-1 stock split. The dividend takes effect January 19.
Issuing standard voting shares to raise capital would undermine the voting power of existing class A and B shareholders.
The restructuring is timed to ensure Zuckerberg retains control if California’s Proposition 40 passes on Election Day, which proposes a 5% tax on taxpayers holding assets exceeding $1 billion.
Litigation Expenses And Muse AI Growth Shape Outlook
Bottom-line profitability faced pressure from litigation expenses. GAAP earnings per share would have reached $7.40 instead of $3.83 if not for legal charges stemming from a teen mental health settlement. Ahead of the earnings release, a New Mexico judge ordered Meta to pay $25 billion related to the state’s consumer-harms case.
Despite the financial headwinds and market volatility, Wall Street analysts remained optimistic regarding artificial intelligence initiatives. The Muse AI agent reached 10 million users across the United States and Canada within six weeks of launch, with 25% of those users engaging daily according to platform metrics.
Muse will be highly profitable over multiple years.
Zuckerberg emphasized that profitability depends on continuous improvements in system compute efficiency.