Key Takeaways:
- Revenue rose 28% to $60.8B, beating estimates by $2.1B
- GAAP EPS of $6.18 missed consensus by $1.04 on $3.58B in charges
- Capex midpoint raised to $137.5B, pushing free cash flow to $784M
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Meta Platforms falls 10% as AI spending crushes free cash flow
Meta Platforms Inc. reported Q2 revenue of $60.8B, beating estimates, but free cash flow plunged to $784M as AI spending surged.
"The results validate our AI strategy," Chief Executive Mark Zuckerberg said. "We're focused on maximizing computing capacity this year and next, with flexibility to evaluate actual needs in 2028 and beyond," Chief Financial Officer Susan Li added on the call with analysts.
Revenue rose 28% from a year earlier, topping the $58.7B consensus compiled by LSEG. Adjusted earnings per share fell 13.4% to $6.18, missing the $7.22 estimate, weighed by $2.4B in legal charges and $1.18B in severance costs. Excluding those one-time items, adjusted operating income would have been $22.36B, implying a 36.8% margin. Ad revenue climbed 27%, with impressions up 14% and average price per ad rising 12%.
The results sent shares down as much as 10% in after-hours trading, erasing roughly $150B in market value. The selloff reflects growing investor concern that Meta's AI infrastructure buildout is consuming nearly all operating cash flow, with capital expenditure reaching $31.1B in the quarter — almost double the year-ago period.
Capital expenditure for the full year is now expected between $130B and $145B, with the midpoint raised to $137.5B from $135B, exceeding the $134.6B analysts had projected. The company also raised its full-year expense forecast to $165B-$169B from $162B-$169B, reflecting the legal charge. Q3 revenue guidance of $61B-$64B came in below the $63.15B consensus at the midpoint.
The cash crunch is intensifying. Operating cash flow of $31.9B was nearly entirely consumed by $31.1B in capex, leaving just $784M in free cash flow — down 91% from a year earlier and a fraction of the roughly $12B quarterly average Meta generated over the prior eight quarters. Depreciation and amortization rose 46% to $6.4B, reflecting the rapid expansion of server and data center assets.
Long-term debt has climbed to $83.7B, up from near-zero levels in 2022, as Meta turns to bond markets to fund its AI buildout. The 40-year bonds the company sold in May have fallen in price, pushing yields near 7%, according to the Wall Street Journal.
Family of Apps operating income fell to $23.4B from $25B a year earlier, even as revenue grew, showing the cost pressure from AI investment. Reality Labs benefited from strong AI glasses growth, partially offset by lower Quest headset sales. WhatsApp reached an all-time messaging record during the World Cup final, peaking at 30 million messages per second.
The spending trajectory raises questions about when Meta's AI investments will generate returns beyond its core advertising business. Management has hinted at potential new revenue streams, including a cloud computing offering, with Zuckerberg noting the company has received offers to rent compute at a "significant premium" over what it pays. Investors will watch the Q3 earnings call for any concrete plans to monetize Meta's AI infrastructure beyond ads.
This article is for informational purposes only and does not constitute investment advice.
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