Meta Q3: $9.89bn Charge, Non-Voting Class C Shares

Meta Platforms grew its revenue by more than a quarter in the third quarter, but a one-off legal charge took a large bite out of its profit. Alongside the results, the company announced a new class of publicly listed shares that will carry no votes, which it says will help pay for the cost of competing in AI.

Revenue for the three months to 30 September rose 26% to $64.60bn, Meta said in its results release on 21 October. Costs and expenses jumped 68% to $51.61bn, including a $9.89bn charge for an agreement with 52 US state attorneys general to resolve litigation over teen mental health and social media. Meta says that agreement provides for payments of up to about $18.59bn.

The charge and the profit figures

Operating income fell 37% to $12.99bn, and the operating margin halved to 20% from 40% a year earlier. Meta says that without the charge, operating income would have been $22.88bn. The charge sits in general and administrative costs, which rose to $14.86bn from $3.51bn, according to the release.

Net income was $9.86bn, up from $2.71bn, and diluted earnings per share were $3.83, against $1.05. Those comparisons are set against a year-earlier quarter in which Meta’s provision for income taxes was $18.95bn, an effective tax rate of 87%; this quarter’s provision was $3.14bn. Excluding the charge, Meta says EPS would have been $7.40.

The core business indicators moved up. Daily active people across Meta’s apps averaged 3.64bn in September, up 3%, ad impressions rose 10% and the average price per ad rose 14%. “Our investments are paying off, the core business is strong, and we’re seeing velocity across the board,” chief executive Mark Zuckerberg said. He also pointed to the launch of Muse and Muse Wonder, which he called “our first frontier model”.

Spending on infrastructure remains heavy. Capital expenditure, including finance-lease principal payments, was $34.91bn, slightly more than the $32.79bn of cash generated by operations, leaving free cash flow at negative $2.12bn. Meta ended the quarter with $82.45bn in cash and marketable securities and 66,775 employees, 15% fewer than a year earlier.

For the fourth quarter, Meta expects revenue of $73bn to $76bn. It raised its 2026 expense outlook to $175bn to $179bn to include the charge, and narrowed its capital spending forecast to $135bn to $145bn, from $130bn to $145bn. Reality Labs, its virtual and augmented reality unit, is expected to lose $18bn to $19bn this year and around $15bn next year.

What the Class C shares are

The new stock is a third class of Meta shares, which the company intends to list on Nasdaq but which carries no voting rights. The first shares will reach investors as a dividend rather than a sale: once the change takes effect on 19 January 2027, every holder of Meta’s existing Class A or Class B shares will receive one Class C share for each share they own, as a one-off stock dividend on a date still to be set.

Meta expects the Class A share price to adjust as if there had been a two-for-one stock split, and says the dividend “will not change the voting power of any shareholder”.

Meta says a special committee of independent directors recommended the move for “capital raising, employee compensation, potential acquisitions, and other general corporate purposes”. “The scale of investment required to compete, sustain growth, expand infrastructure, and pursue new strategic initiatives amidst the AI transformation taking place in the industry is significant,” the company said. The committee also said the structure would continue “the founder-led model” under Zuckerberg, with whom Meta has signed a Founder Alignment Agreement covering his sales of Class C shares and his service at the company.

The change has already been approved by shareholder written consent, according to the release. Further detail will come in a Form 8-K and an information statement for the US Securities and Exchange Commission.