Meta Earnings Under Pressure in Q2, Revenue Up, Profit Dips
Meta platform earnings underperformed analysts’ expectations; its Q2 2026 results showed adjusted earnings per share (EPS) declining 31.5% year on year to $6.18, well below the $8.58 estimated by Bloomberg.
The platform performance was affected by significant AI infrastructure spending and rising operating costs, details from Q2 financial scorecard released revealed.
Revenue increased 28% year on year to $60.8 billion, slightly ahead of Bloomberg’s $60.2 billion estimate, driven by continued strength across the Family of Apps ecosystem.
Details from the results showed that advertising impressions increased 14% year on year, supported by 3% growth in daily active people (DAP) and a 12% increase in average advertising pricing.
Revenue from the Family of Apps increased 28.0% y/y, while Reality Labs revenue grew 16.5%. Operating income declined 8.2% y/y to $18.8 billion versus Bloomberg’s $21.5 billion estimate.
However, the platform reported that operating margin contracted to approximately 31% from approximately 43% in the prior year as costs increased 55% y/y to $42 billion.
Operating cash flow remained robust at $31.9 billion versus $25.6 billion in Q2 2025, although free cash flow declined 90.8% y/y to $784 million following a sharp increase in AI-related capital expenditure.
The group paid $1.35 billion in dividends but completed no share repurchases during the quarter, in contrast to $10.2 billion paid in Q2 2025.
Management expects Q3 2026 revenue of between $61 billion and $64 billion, below Bloomberg’s estimate of $63.19 billion and increased FY26 expense guidance to between $165 billion and $169 billion and capex guidance to between $130 billion and $145 billion.
In its commentary note, Stockbroking and Portfolio Management subsidiary of First National Bank said Meta delivered mixed performance in the period, reflecting worse-than-expected weakness in earnings while revenue growth delivered a modest beat.
Analysts noted that the company’s top-line performance was underpinned by solid advertiser demand, expanding Reels monetisation, and AI-driven ad recommendation improvements that drove double-digit gains across both ad volume (+14%) and pricing (+12%).
Operationally, the group was heavily impacted by a $2.4 billion charge for legal proceedings related to ongoing youth safety litigation and regulatory proceedings, alongside $1.18 billion in severance charges from headcount adjustments.
These ongoing legal proceedings in the period drove up the total costs and ultimately led to a decline in profitability and sharp margin contraction.
Cash generated from operating activities was robust in the period, benefitting from favourable movements in working capital. However, free cash flow plunged on the back of a sharp step-up in capital expenditures toward generative AI infrastructure.
This capital intensity prompted management to pause share buybacks during the quarter, allocating capital toward debt service, dividend distributions ($1.35 billion), and data centre capacity additions.
Guidance for the next quarter is tracking behind market expectations as core advertising demand remains resilient while broader macroeconomic and legal costs remain headwinds.
Meta is trading on a forward price-to-earnings of 14.6 times, a slight discount relative to its long-term historic average. #Meta Earnings Under Pressure in Q2, Revenue Up, Profit Dips US Equities Sold Off, European Markets Diverge as Sentiment Shifts
