BiyaPay Market Watch: Meta Revenue Grows 26%, So Why Did the Stock Fall Nearly 7%?

Revenue grew 26%, yet the stock fell nearly 7%. Meta's earnings report reveals a new contradiction in the AI investment boom: revenue is still growing, but capital expenditures, cash flow pressure, and future financing arrangements are changing the market's judgment on growth returns.

On October 22, US Eastern Time, BiyaPay market data showed Meta's regular trading closed at $648.85, down 6.98%. The company's third-quarter revenue reached $64.601 billion, up 26% year-over-year, but free cash flow turned negative at $2.12 billion, and the lower bound of its full-year capital expenditure guidance range was also raised by $5 billion.

In addition, the company recorded approximately $9.89 billion in legal-related expenses for the quarter and announced an arrangement to establish non-voting Class C stock. Together, these factors constitute variables that cannot be ignored when the market assesses the quality of Meta's future growth.

What the market is recalculating this time is not just how much revenue AI can bring in, but how much capital these growth efforts require, and how much cash will ultimately be left for shareholders.

Revenue grew 26%—so why couldn't it prop up META's stock price?

Revenue growth did not prevent the stock from falling. One reason worth noting is that revenue expansion does not necessarily increase the cash available for shareholders to share in at the same pace.

Meta's third-quarter operating cash flow was $32.79 billion, with free cash flow at negative $2.12 billion. Under the company's disclosed methodology, capital expenditures and principal payments on finance leases totaled $34.91 billion, exceeding operating cash flow for the quarter.

This does not mean Meta's core business is no longer profitable. The company still generated more than $30 billion in operating cash flow during the quarter; it is simply that the scale of capital investment was larger, causing free cash flow to turn negative.

At the same time, the income statement was also significantly affected by legal expenses. Meta's operating income for the quarter was approximately $12.99 billion, down 37% year-over-year; this included $9.89 billion in expenses related to a litigation settlement arrangement with multiple US state attorneys general. Excluding this expense, operating income would have been approximately $22.88 billion. Therefore, the quarterly profit decline cannot be attributed entirely to AI investment.

Cash flow and profit need to be viewed separately. Operating cash flow reflects the business's ability to generate cash, while free cash flow further deducts capital investment as defined by the company; legal expenses directly affect current-period profit. Together, the three present Meta's current operating condition: the core business is still growing, but infrastructure investment and one-time legal expenditures are changing its financial performance.

At the end of September, Meta still held $82.45 billion in cash, cash equivalents, and marketable securities, meaning the company has a strong financial buffer. However, existing cash does not equal an unlimited source of additional income; continued future investment will still require operating cash inflows and reasonable capital allocation.

What shareholders really need to judge is: can the current peak in investment bring stronger cash-generating capacity in the future? If the new equipment can improve advertising efficiency and support monetization of new products, short-term cash flow pressure may be the result of building ahead of time; if investment continues to expand while new returns fail to materialize, the market may lower its valuation of long-term returns.

Advertising business is still growing—can it support the valuation of the AI era?

Meta's third-quarter ad impressions increased 10% year-over-year, and the average price per ad rose 14%, driving advertising revenue up 26% year-over-year.

This shows that the company's core advertising business still has growth momentum. More precise content recommendations, more effective ad matching, and more complete advertising tools can all help the platform improve monetization efficiency.

But the entire increment in advertising revenue cannot be directly attributed to AI. Advertiser budgets, market demand, ad placement, user engagement, and the competitive landscape also affect ad impressions and prices.

More importantly, improving the existing advertising business and building entirely new paid AI products are two different commercialization paths. The former can gradually be reflected in revenue through improved advertising efficiency; the latter still needs to prove that users are willing to keep using it, customers are willing to pay, and revenue can cover model training, inference, and infrastructure operating costs.

Therefore, to judge whether Meta can obtain a higher valuation, the two accounts need to be separated: whether the mature business continues to improve efficiency, and whether the new business gradually forms repeatable revenue. The former supports current profitability, while the latter determines whether the additional investment is worthwhile.

For investors focused on US tech stocks, beyond earnings analysis, they also need to continuously track stock prices, valuations, and capital flows. BiyaPay provides US stock-related trading services and business scenarios such as USDT-to-USD conversion, offering another path for capital use for users who hold USDT and wish to understand the US stock market. The convenience of trading channels cannot replace fundamental judgment; whether a stock price is worth watching must ultimately return to earnings expectations, capital expenditures, and cash returns.

Will Class C stock dilute shareholders? Distribution is not the same as issuance

Another item that drew attention in the announcements related to this earnings report was Meta's establishment of a new non-voting Class C common stock.

Under the arrangement announced by the company, Meta plans to distribute Class C shares to existing Class A and Class B shareholders on a per-share basis. The arrangement is intended to take effect in January 2027, with specific record and payment dates subject to subsequent company announcements. The company said the new class of stock could be used in the future for financing, employee compensation, and potential acquisitions.

Two concepts need to be distinguished here: distributing a new class of stock to existing shareholders on a proportional basis is not the same thing as the company issuing more shares to outside investors in the future.

Proportional distribution itself does not mean shareholders lose half of their economic rights out of thin air, nor does it directly bring new cash to the company. What truly involves potential dilution is whether additional shares are actually issued in the future, at what price, and whether the funds raised can generate sufficient returns.

What the market is focused on is that the new class of stock may provide the company with more options for future financing and capital allocation. Financing flexibility helps support AI infrastructure expansion, but whether the funds can ultimately be converted into higher revenue, profit, and cash flow still depends on the company's investment efficiency.

Therefore, it is not appropriate at present to directly describe this arrangement as a confirmed AI financing plan. What needs attention going forward is the formal documents, specific issuance conditions, and use of funds, rather than judging whether shareholders are harmed solely based on changes in stock class.

Capital expenditure floor raised—how much pressure will future earnings per share face?

Meta adjusted its full-year 2026 capital expenditure guidance to $135 billion to $145 billion, compared with the previous range of $130 billion to $145 billion. The change is that the lower bound was raised by $5 billion, while the upper bound remained unchanged.

This adjustment indicates that the company's expectation for the full-year scale of investment has increased. As AI infrastructure construction continues to advance, servers, data centers, network equipment, and related operating capabilities all require substantial funding support.

The relationship between capital expenditure and the income statement is not a simple one-to-one correspondence. When equipment is purchased, cash may flow out first; after the equipment is put into use, related costs gradually enter the income statement through depreciation and other means. Therefore, pressure on free cash flow and impact on future profit margins may appear in different quarters.

If new equipment can maintain high utilization, and AI services and the advertising business continue to grow, new revenue may have a chance to gradually dilute some costs. Conversely, if equipment utilization falls short of expectations, technological iteration shortens the economic useful life, or new product commercialization is slower than planned, capital recovery may come under pressure.

This is also why looking only at current earnings per share is not enough. Investors also need to observe capital expenditures, depreciation, infrastructure utilization, operating cash flow, and subsequent revenue guidance to judge whether investment is forming sustainable operating returns.

For the asset-heavy AI business, the scale of investment itself can neither directly prove growth prospects nor independently explain operating risks. What really matters is whether sufficient revenue, profit, and cash can be continuously generated after the investment.

Is a nearly 7% drop an opportunity? What evidence is still missing for META's revaluation?

The stock decline shows that the market is reassessing future returns, but the size of the drop itself does not prove that the valuation is already cheap. While the per-share price falls, investors' expectations for future cash flow, profit margins, and capital allocation efficiency may also change.

Three areas are worth continued observation going forward.

First, whether the advertising business can continue to grow. Ad impressions, average ad prices, and advertising revenue can help judge whether Meta's core business still has stable monetization capacity.

Second, whether AI products can generate sustained revenue. Model and product launches can attract attention, but what truly determines commercial value is user retention, paid conversion, enterprise customer demand, and the relationship between these revenues and operating costs.

Third, whether capital expenditure can gradually translate into cash returns. If operating cash flow can continue to cover an increasing amount of investment, the market will find it easier to confirm the economic value of the investment; if investment continues to expand while the payback period keeps lengthening, valuation pressure may persist.

Financing arrangements also need to be judged in light of actual documents. Whether new shares are issued, at what price, and which projects the funds are used for are all closer to shareholders' economic interests than simply discussing a new class of stock.

It should also be noted that single-day stock price fluctuations are usually affected by multiple factors together, and Meta's decline that day cannot be attributed entirely to any single earnings metric or company announcement. AI investment expectations, overall tech stock performance, valuation levels, and market risk appetite may all affect short-term pricing.

Meta still has a massive user base and a mature advertising business. The contradiction truly revealed by this earnings report is that the company has proven it can expand revenue, and what the market now wants to know is how much capital this growth requires and how much cash it will ultimately leave for each share.

For AI investment, growth is the first step, and delivering returns is the next. Going forward, whether Meta can prove that its current investment is worthwhile through higher operating efficiency, more sustained revenue growth, and more robust cash flow will become an important basis for the market to reassess its valuation.