Meta’s Earnings Drop Shows Wall Street Wants More Than Ad Growth

Key Points

• Meta Platforms beat revenue estimates in Q2, but legal and severance expenses drove a steep EPS miss and pressured investor sentiment.
• Analysts cut price targets after the report, but most still remain bullish, with no Sell ratings tracked.
• Meta’s AI spending is raising the bar for future growth, making non-advertising catalysts like compute sales, model monetization and subscriptions increasingly important.

Meta Platform’s NASDAQ: META Q2 earnings distinctly disappointed investors, as demonstrated by the stock’s 8% fall after the report.

Wall Street analysts did not react well to the report either, with many issuing substantial price target decreases afterward.

These decreases were also more significant compared to past earnings reports.

However, analysts have not abandoned this Magnificent Seven giant by any stretch of the imagination, with most still pointing to substantial upside going forward.

Meta’s Q2 Report: The Good, the Bad, and the Ugly

Meta managed to beat sales estimates in Q2, with revenue rising 28% year-over-year (YOY). Despite the beat, there were just a few positive aspects to Meta’s report outside of this.

Meta posted a steep earnings-per-share (EPS) miss, driven largely by legal issues that surfaced earlier in 2026, resulting in a multi-billion-dollar expense. To make matters even worse, the firm had to pay the piper for its recent layoffs, incurring over $1 billion in severance expenses that also put substantial downward pressure on EPS. Although adjusting for these expenses makes Meta’s EPS post look much less disappointing, these are still real costs to the company at the end of the day.

The company indicated that substantial legal expenses could persist in the future, noting that its youth-related legal issues could result in a material loss.

The negatives did not end there. The midpoint of Meta’s revenue guidance also came in below expectations, an outcome that is particularly unfavorable given the firm’s massive AI spending. Additionally, Meta beat sales estimates by the smallest margin among hyperscalers in Q2.

Meta continues to grow at an over 25% year-over-year clip, a strong rate for a company of its size. However, with such drastic AI spending helping drive this growth, markets are not likely to give the firm the benefit of the doubt when key metrics are not up to par. Analyst price targets indicate sell-siders may be reducing how much leeway they are willing to give Meta as well.

Meta Price Targets Take a Big Hit

The MarketBeat consensus price target on Meta sits near $790, a figure that implies very significant upside potential of more than 30%. However, the picture looks less aggressive when measured against more recently updated analyst targets after the company’s report. Other current target averages sit closer to the mid-$700s, implying upside in the high-20% range rather than the low-30% range.

This comes as analysts pushed their targets down substantially after Meta’s report. The average price target, based on MarketBeat's historical data, decreased by more than 10%, marking a bigger decline than the shares themselves. Some of the most bullish analysts on Meta cut their price targets by over $100. This includes Rosenblatt and Susquehanna. Rosenblatt previously had a $1,015 target on Meta, but dropped this figure by 13% to $883. Susquehanna’s decrease was even more drastic, with its target falling by 28% from $900 to $650.

Analysts have often moved their price targets along a trajectory similar to Meta’s post-earnings price action. However, in many of these instances, price target movements have been relatively favorable, rising more when Meta gains and falling less when it drops.

It is noteworthy that the percentage decrease in targets was slightly greater than the actual decline shares observed. This indicates a greater deterioration in analyst sentiment after the report compared to past quarters. Still, analyst ratings provide some solace, with Meta having 39 Buy, eight Hold, and zero Sell ratings.

The Waiting Game for Non-Advertising Growth Catalysts Continues

The market holds Meta to a high standard, especially regarding growth, as its AI investments aim to provide growth tailwinds. At this point, it is becoming increasingly difficult for Meta to justify its AI spending based on advertising growth alone. The firm is in need of alternative catalysts in order to restore confidence among many investors.

The good news is that Meta is in the process of pulling growth levers, although many of these initiatives are in their early stages and have yet to yield actual results. This includes the potential pathway for selling its excess compute to third parties that are seeing strong demand for their AI services.

Additionally, Meta is working to monetize its Muse Spark 1.1 model, which was only released in July. This is the first time that Meta will try to directly monetize a model through token sales. Meta is expanding access to Muse Spark 1.1 through popular model distribution channels such as OpenRouter.

Lastly, Meta recently released subscription offerings that could drive meaningful growth if they gain significant adoption among Facebook and Instagram users.

There is still reason for optimism around Meta stock. However, investors should weigh the legal risk surrounding the company, and the risk that its non-ad growth may take a substantial amount of time to kick in.

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