Meta Stock Slides Despite Rapid Revenue Growth

Meta's Q3 Earnings: Strong Growth Meets Market Skepticism

Meta Platforms delivered robust third-quarter results, outpacing Wall Street’s expectations with its fastest revenue growth in over a year. However, the market reaction was sharply negative, with Meta shares falling over 7% in after-hours trading, even as key performance indicators and core business segments posted impressive gains.

Revenue and User Metrics Exceed Expectations

For the quarter, Meta reported revenue of approximately $51.24 billion, up 26% year-over-year and well above analyst estimates of $49.34 billion. The surge marked Meta’s strongest topline growth since early 2024. Key operational metrics also impressed: ad impressions grew by 14%, the fastest pace since Q1 2024, and the average price per ad increased by 10%. Daily active people (DAP), a measure of unique users across Meta’s platforms, rose by 8%, the highest rate since late 2023.

Meta’s Reality Labs division, often scrutinized for its heavy investments, reported a 74% increase in revenue versus the prior year. Notably, the newly launched Ray-Ban Display AI Glasses sold out in almost every store within 48 hours. However, management cautioned that much of Reality Labs’ Q3 growth stemmed from retailers stocking up ahead of the holidays, and that revenues from this segment may be lower in the coming quarter.

One-Time Tax Charge Hammers EPS

Despite the strong operational results, Meta’s earnings per share (EPS) came in dramatically below expectations at $1.05—a staggering 83% decline from the previous year. This sharp drop was not reflective of a downturn in Meta’s underlying profitability. Instead, it was driven by a $16 billion one-time charge stemming from a change in U.S. tax law, which required the company to reduce the value of its deferred tax assets.

Adjusted for this charge, Meta’s EPS would have been $7.25, representing a 20% year-over-year increase and significantly surpassing analyst forecasts. Management indicated that, going forward, tax expenses should decrease now that this charge has been absorbed.

Operating margin landed at 40%, a decline of roughly 275 basis points but still slightly better than the 39.3% expected by analysts. The dip was largely attributed to increased research and development (R&D) spending, which rose to 30% of revenue versus an average of 27% over the last two years. While higher R&D costs can pressure margins, they signal ongoing investment in future technologies and AI infrastructure.

Spending Outlook Clouds Near-Term Sentiment

The primary concern for investors emerged from Meta’s projection that total expenses will grow "significantly faster" in 2026 compared to 2025. The company anticipates a notable increase in capital expenditures as it continues to scale investments in AI and infrastructure. This forecast raises questions about the sustainability of Meta’s profit margins if revenue growth does not accelerate in tandem.

Given these spending plans, the market reacted with caution, reflecting fears that escalating costs may erode profitability. While the one-time tax hit is largely a non-recurring event, the prospect of surging operational expenses in 2026 has injected uncertainty into Meta’s outlook.

Analyst Consensus and Valuation Snapshot

Despite the post-earnings pullback, analyst sentiment remains constructive. Meta currently carries a "Moderate Buy" consensus based on 47 analyst ratings. The average 12-month price target sits at $827.60, suggesting potential upside of nearly 28% from current levels. Targets span a wide range, with a high of $1,117.00 and a low of $605.00, reflecting both optimism and caution amid evolving fundamentals.

Outlook: Cautious Optimism Hinges on Spending Discipline

Meta’s Q3 performance showcased impressive revenue and user growth, reinforcing the company’s position as a digital advertising powerhouse. The negative market reaction, however, highlights investor anxiety over rising expenses and the need for clear guidance on 2026 spending. The next earnings cycle, when Meta is expected to offer more concrete forecasts, will be pivotal in shaping sentiment around the stock.

Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice or an offer to buy or sell any securities. Investing involves risk, including the loss of principal. Past performance is not indicative of future results. Analyst opinions referenced are those of third parties and are subject to change.