Meta Bounces Back in Q3, But the Bigger Test Comes in 2027

Key Points

• Meta Platforms reported Q3 sales of $64.6 billion, up 26% year-over-year, beating analyst forecasts and its own guidance range.
• The company issued stronger-than-expected Q4 revenue guidance of $74.5 billion at the midpoint while keeping capital expenditure increases modest for 2026.
• Meta highlighted strong early adoption of its Muse AI agent, citing 10 million users and plans to improve its cost efficiency and profitability over time.

Meta Platforms NASDAQ: META stock has gone on a very impressive run as of late, driven by the release of its Muse personal AI agent.

This raised the stakes going into Meta’s Q3 earnings release as the firm looked to rebound from a disappointing Q2 showing.

This time around, Meta delivered strong numbers on many critical fronts, from overall sales and growth guidance to key metrics and expectations for Muse.

Following the release, the stock gained nearly 3% in after-hours trading. Despite this moderate gain, the report should inspire confidence among investors and set the stage for a Q4 release that could be even more consequential.

Meta Beats on Sales and Guidance, Keeps a Lid on Capital Expenditures

Meta reported sales of $64.6 billion, an increase of 26% year-over-year (YOY). This was considerably ahead of analysts' forecasts of $63.34 billion and solidly exceeded the high end of Meta’s guidance of $64 billion.

On top of this strong growth number, Meta provided impressive Q4 guidance. The company expects to generate sales of between $73 billion and $76 billion, or $74.5 billion at the midpoint. This midpoint is approximately $900 million higher than the $73.6 billion analysts anticipated.

After adjusting for the company’s $9.89 billion in charges related to its litigation agreement with 52 attorneys general, the company’s earnings per share (EPS) would have been $7.40. This equates to an increase of 2.1% YOY from an adjusted EPS of $7.25 in Q3 2025 and substantially beats earlier estimates of $6.54, before the legal charge was incorporated into forecasts. Meta’s GAAP EPS was $3.83.

Notably, operating margin fell sharply from 40% to 20%. Adjusting for the legal charges improves its operating margin to 35.4%, as costs and expenses still grew significantly faster than sales. The company raised the midpoint of its 2026 total expense guidance by $10 billion to $177 billion to account for its legal charges.

Despite beating sales estimates, Meta’s ad impressions delivered increased by 10% YOY, its lowest rate in at least the last five quarters and a very large decline from its recent peak of 19% YOY in Q1 2026. On the other hand, average price per ad growth was very strong at 14% YOY, its highest rate in at least the last five quarters.

In another positive sign, Meta only slightly increased the midpoint of its capital expenditure (CapEx) guidance. The figure now sits at $140 billion for 2026, up 1.8% versus $137.5 billion previously. CapEx of $34.91 billion in the quarter was a key factor in Meta’s free cash flow (FCF) moving to -$2.12 billion, with the company becoming the latest AI hyperscaler to go FCF negative.

Meta Outlines Strong Expectations for Muse

CEO Mark Zuckerberg centered his introductory comments around Meta’s most discussed new product: the Muse personal agent. Zuckerberg provided many encouraging and bullish statements. In a matter of 1.5 months, 10 million people have set up Muse. This is only across the United States and Canada, as Meta has not rolled out the agent globally yet due to its compute intensity.

Engagement also appears strong, with Meta noting that 25% of these individuals use Muse on any given day. Meta said that the most common use case for Muse is shopping, in which over one-fourth of weekly active users engage at an average purchase price of over $200. These are encouraging signs, given Meta’s strategy of extracting fees on transactions executed by Muse. Still, Meta did not disclose the frequency of such purchases or the rate it receives on them.

Meta provided two particularly bullish statements about Muse’s trajectory. First, it said that the average American Muse user generates several hundred dollars in annual Family of Apps (FOA) revenue for Meta through its existing apps, rather than Muse itself. Meta expects that over time, Muse’s average revenue per American user will exceed this, based on the level of commerce already taking place through Muse. This implies a potentially huge revenue stream long-term, depending on how many users Muse gains and transaction growth. Meta says it is building out capacity to serve over 1 billion Muse users over the next few years.

Secondly, Meta expects to improve Muse’s cost efficiency by more than 10 times over the next year. Meta says this will enable Muse to be profitable once revenue scales, and if compute efficiency continues improving quickly for another few years, which it believes is highly likely, Muse will be “highly profitable."

Meta Delivers in Q3, Setting the Stage for 2027 Outlook

Meta’s Q3 earnings report hit all the right notes: above-guidance revenue, higher-than-expected Q4 guidance, and strong commentary on Muse. However, Meta’s Q4 earnings should be much more pivotal to its outlook. The company should provide CapEx guidance for 2027 and have more robust data around Muse’s growth trajectory.

Meta expects its new AI businesses to begin contributing “incremental” revenue in 2027. Gaining a more precise understanding of what incremental means, especially in relation to its 2027 CapEx guidance, will be one of the key watch items going forward.