Meta’s earnings report shows two sides: Revenue grew 26%, so why did the stock plunge?

When reading Meta’s earnings report, don’t just look at the top-line revenue, or it’s easy to get carried away by the impressive figures.
First, the good news: Third-quarter revenue was $64.6 billion, up 26% year over year; average daily active users across its family of apps reached 3.64 billion, ad impressions rose 10% year over year, and the average ad price increased 14%. This shows that Meta’s core advertising business still has substantial earning power.[1]
Now, the pressures: The company’s costs and expenses rose 68% year over year in the third quarter, while operating profit fell 37%. This included about $9.9 billion in legal-related expenses, so the entire decline in profit cannot simply be blamed on AI. But capital expenditure continues to climb, making the market pay closer attention to cash flow and returns on investment.[1]
And that’s the contradiction: The old business is still making money, while the new business needs continued investment. AI could be the next growth engine—or it could first become a money-burning machine.
In my view, judging Meta means asking more than “Did revenue grow?” We also need to ask three questions: Can profit margins remain stable? When will AI investment deliver returns? Can free cash flow recover?
The stock plunge reflects the market repricing its expectations for the future; it doesn’t automatically mean the company’s fundamentals have completely deteriorated.
The biggest investment risk isn’t ugly numbers—it’s looking only at the numbers you want to see. Would you focus first on revenue growth, or on profit and cash flow?$MU

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