Meta beats on revenue and splits its stock with nonvoting shares to raise capital

Meta beats on revenue and splits its stock with nonvoting shares to raise capital

Meta Platforms Inc. shares rose about 2% in after-hours trading today after the social networking company beat third-quarter revenue expectations and unveiled nonvoting Class C shares that will act as a two-for-one stock split.

For the quarter ended on Sept. 30, Meta reported diluted earnings per share of $3.83, up from $1.05 a year earlier, on revenue of $64.60 billion, up 26% year-over-year. Analysts were expecting earnings of $3.56 per share on revenue of $63.3 billion.

The earnings figure absorbed a $9.89 billion charge for the agreement Meta reached in August with 52 attorneys general to settle litigation over teen mental health and social media. Payments under the deal could reach about $18.59 billion. Excluding the charge, earnings would have been $7.40 per share.

Operating margin fell to 20% from 40% as total costs and expenses jumped 68%, to $51.61 billion. Net income still rose, to $9.86 billion from $2.71 billion, because a onetime tax charge had depressed last year’s number. Advertising made up $63.06 billion of revenue, with the average price per ad climbing 14% on 10% more impressions. Daily active people across Meta’s apps averaged 3.64 billion in September, up 3%.

Capital expenditures, including principal payments on finance leases, came to $34.91 billion, more than the $32.79 billion in cash generated by operations. Free cash flow was negative $2.12 billion, after shrinking to $784 million in the second quarter. Headcount ended September at 66,775, down 15% following job cuts in May.

Founder and Chief Executive Mark Zuckerberg said Meta’s “investments are paying off,” citing the launch of the Muse personal agent and the Muse Wonder model. More than 10 million people in the U.S. and Canada set up Muse accounts in about six weeks, he told analysts on the earnings call. Because the service takes so much computing power to run, it has not launched globally. Meta expects to make Muse more than 10 times as cost-efficient over the next year, he said.

The stock split will come through a dividend of new Class C shares, one for each outstanding Class A and Class B share, once an amended certificate of incorporation takes effect on Jan. 19, 2027. Meta intends to list the new stock on the Nasdaq. A special committee of independent directors recommended the change, saying the shares give Meta a way to raise capital, pay employees and fund acquisitions. Zuckerberg’s control is unaffected, with about 60.6% of the vote on a 13.4% economic interest, according to an information statement Meta filed today.

Zuckerberg also signed what Meta calls a Founder Alignment Agreement. Only 20% of the Class C shares he receives can be sold freely. Selling any of the rest means also selling a Class A share or converting a Class B share, either of which trims his voting control. The restricted shares unlock at 2.5% a quarter for as long as he stays a full-time executive or executive chair.

The deal also commits him to remain a California resident, or live wherever Meta keeps its headquarters, for eight years. That clause traces back to Proposition 40. If California voters pass the wealth tax measure on Nov. 3, Zuckerberg could owe billions of dollars in tax, the information statement says. He had told the committee he was weighing a move out of the state.

For its fourth quarter, Meta expects revenue of $73 billion to $76 billion, against the $73.65 billion analysts had forecast. The full-year capital expenditure range narrowed to $135 billion to $145 billion, from $130 billion to $145 billion. The legal charge pushed the full-year expense outlook up to $175 billion to $179 billion.

Losses at Reality Labs, Meta’s virtual and augmented reality hardware unit, should narrow to about $15 billion next year, from $18 billion to $19 billion this year, as investment moves further toward artificial intelligence. Meta gave no revenue forecast for 2027. On the investor call, Chief Financial Officer Susan Li said Muse’s compute intensity means “expanding its user base will require significant investment.”

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