Meta's Stock Dives Despite Strong Q3 & Stock Split Plans

Meta Platforms' stock saw a significant sell-off on Thursday, despite the social media giant exceeding third-quarter revenue expectations with a 26% year-over-year increase. Revenue for the quarter reached $64.6 billion. However, escalating costs associated with artificial intelligence (AI) investments and increasing legal expenses have overshadowed these positive financial results. Investors are particularly concerned about Meta's capital expenditures, which reached $34.91 billion in the quarter. This aggressive spending contributed to free cash flow turning negative at $2.12 billion, a stark contrast to the prior year's positive $10.63 billion. Meta has also narrowed its full-year capital expenditure outlook to $135-$145 billion. Furthermore, the company faces additional legal uncertainty from a $25 billion privacy case judgment, which it plans to appeal. Despite these challenges, Meta anticipates Q4 revenue between $73-$76 billion, aligning with analyst forecasts.

In a notable announcement alongside its Q3 report, Meta revealed plans to introduce a new class of non-voting Class C shares in January 2027. This move will effectively result in a 2-for-1 stock split, where shareholders will receive one new share for each existing share. While this split will not alter Meta's overall market valuation, the lower per-share price is intended to make the stock more accessible to retail investors. This strategy could potentially revitalize buying interest following the recent market downturn. However, leading into the Q3 report, Meta's earnings estimates had been trending downwards, reflecting ongoing concerns about profitability due to significant AI infrastructure investments impacting operating margins and cash flow.