Meta shares slump nearly 7% as AI spending turns free cash flow negative
Meta posted negative free cash flow of $2.12 billion in the third quarter and raised the floor of its full-year capex guidance, even as revenue rose 26% to $64.60 billion.
At a glance
- Meta shares fell nearly 7% after third-quarter earnings showed negative free cash flow of $2.12 billion.
- Meta lifted the bottom of its full-year capex guidance to $135 billion, up from a previous floor of $130 billion.
- Revenue rose 26% to $64.60 billion, beating the $63.37 billion analysts expected.
Meta shares slumped nearly 7% on Thursday after the social media giant reported negative free cash flow in its third-quarter earnings and raised the floor of its full-year capital expenditure guidance, deepening investor questions about its artificial intelligence spending.
Free cash flow came in at a negative $2.12 billion for the quarter. Meta said it expects full-year capital expenditure of $135 billion to $145 billion, lifting the bottom of that range from a previous $130 billion.
Credit markets also reacted. The spread on Meta's five-year credit default swaps reached all-time highs on Thursday, a signal of growing credit concerns from investors as the company leans deeper into its AI spending plans.
Revenue rises, but earnings comparison unclear
Revenue grew 26% from a year earlier to $64.60 billion, ahead of the $63.37 billion analysts expected. Earnings per share were reported at $3.83, though it was not clear whether that figure was directly comparable with the $5.75 per share Wall Street was looking for.
New share class and a California tax question
Meta disclosed Wednesday, in its earnings release, that it would create a new class of nonvoting Class C common stock. The company said the move was meant to maintain its "founder-led structure" and "provide Meta the ability to finance its growth."
The filing also said CEO Mark Zuckerberg could leave the state if the "California Wealth Tax" were to pass, because he "could become liable for a significant, multi-billion-dollar tax payment based on his ownership of stock in the Company." Zuckerberg was convinced to stay in California by the company's new stock plan, the filing noted.
Investors are now weighing Meta's revenue growth against the rising cost of its AI expansion, with the quarter's cash flow and capex guidance at the centre of the reaction.
Source: CNBC.
Questions and answers
- Why did Meta stock fall?
- Meta reported negative free cash flow of $2.12 billion for the third quarter and raised the floor of its full-year capital expenditure guidance, feeding investor concerns about its AI spending. Its five-year credit default swap spread hit all-time highs.
- What is Meta's new Class C stock?
- Meta said it would create a new class of nonvoting Class C common stock, intended to maintain its "founder-led structure" and give the company the ability to finance its growth. The filing said the plan convinced CEO Mark Zuckerberg to stay in California.
- How did Meta's third-quarter revenue compare with expectations?
- Revenue rose 26% year over year to $64.60 billion, against the $63.37 billion analysts expected. Earnings per share were $3.83, though it was unclear whether that was directly comparable with the $5.75 Wall Street expected.
