Meta
META · NasdaqA legal charge drove most of the margin drop
General and administrative costs, swollen by a legal settlement charge, took 16.14 more points of revenue, most of the 19.97-point fall in operating margin.
Q3 FY2026, the quarter to Sep 30, 2026 · 10-Q filed Oct 22, 2026
- Operating margin
- 20.1%
- Net income
- $9.9B
- Free cash flow, quarter
- -$1.2B
Largest source of revenue: Advertising, 97.6% of the total.
Where Meta's money goes
- 01
A legal charge drove most of the margin drop
General and administrative costs, swollen by a legal settlement charge, took 16.14 more points of revenue, most of the 19.97-point fall in operating margin.
Why it matters
General and administrative expense was $14.9B, against $3.5B a year earlier, up 323.0%. Its share of revenue rose 16.14 points to 23.0%, while the operating margin fell 19.97 points to 20.1% from 40.1%. This one line accounts for 16.14 of the 19.97 points the margin lost. The filing says the increase was "mostly due to higher legal-related costs," including a charge for the August multistate attorneys general agreement on teen mental health and social media.1
The other cost lines moved far less as a share of revenue. Cost of revenue took 20.69%, up 2.73 points. Research and development took 31.04%, up 1.49 points. Marketing and sales took 5.16%, down 0.39 points.1
AnalysisA settlement charge is not a cost of running the apps in the way servers are, so most of this quarter's margin fall is not a reading on the ad business itself. The caveat is that the legal line may not shrink back fully: part of the agreement is contingent, and other cases remain open.
- 02
Ad prices, not more users, drove the growth
Revenue per person rose 23% while daily people grew 3%, and ad prices rose 14% against 10% more impressions, reversing last year's mix.
Why it matters
Family daily active people averaged 3.64 billion in September, up 3% from 3.54 billion. Average revenue per person for the quarter was $17.72, up 23% from $14.46. Average price per ad rose 14% and ad impressions rose 10%; a year earlier it was the reverse, price up 10% and impressions up 14%.1
The filing attributes the price gain to higher advertising demand, which it believes is "mostly due to ongoing improvements to our ad performance from our ad targeting and measurement tools." The gain came despite more impressions in regions and products, such as Reels, that monetize at lower rates. Online commerce was the largest contributor to the rise in ad revenue.1
AnalysisWith the number of people growing in low single digits, growth now rests on what each ad is worth to the advertiser. That makes the price per ad the most direct test of whether Meta's ad systems are improving faster than privacy rules and phone platforms take data signals away.
- 03
Capital spending passed the cash the business made
Capital spending of $33.9B equaled 103.5% of operating cash flow, against 62.8% a year earlier, so free cash flow turned negative.
Why it matters
Capital expenditures were $33.9B in the quarter against $18.8B a year earlier, equal to 52.5% of revenue. Operating cash flow was $32.8B against $30.0B a year earlier. Free cash flow was negative $1.2B, after $13.2B in the first quarter and $1.7B in the second. In the last full year, capital spending was $69.7B against operating cash flow of $115.8B.1
The filing ties the spending to servers, data centers and network infrastructure for its AI initiatives and the core business, and says it expects these investments "to continue to increase." No shares were repurchased so far this year, and the company issued new long-term notes in May.1
AnalysisCash spent on equipment now returns to the income statement as depreciation over several years. Operating cash flow is still large, so the gap is a choice rather than a strain, but it shifts the question from what the capacity costs to what it will earn.
- 04
Net income rose as operating profit fell
Net income rose to $9.9B from $2.7B while operating income fell 36.8%, because a year earlier taxes took 87.5% of pre-tax income.
Why it matters
Income from operations was $13.0B against $20.5B. Net income was $9.9B against $2.7B, up 264.0%. The year-earlier quarter carried a tax provision of $19.0B, 87.5% of pre-tax income of $21.7B, which the filing ties to the enactment of the One Big Beautiful Bill Act. This quarter's provision was $3.1B, 24.2% of pre-tax income.1
Income below the operating line also shrank. Interest and other income, net, was $13M against $1.1B a year earlier. The filing cites higher interest expense on larger long-term debt and losses on marketable equity investments.1
AnalysisThe jump in net income says more about last year's tax charge than about this year's business. Operating income, and an operating margin of 20.1% against 40.1%, is the better guide to how the quarter went.
Sources
- 1.Meta 10-Q for the period to 2026-09-30 (the filing), Oct 22, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $2.0B in FY2010 to $201.0B in FY2025, the operating margin from 52.3% to 41.4%, over 15 years.
- Revenue$201.0B
- Operating income$83.3B
- Operating margin41.4%
- Period
- Q3 FY2026
- Revenue
- $64.6B
- Operating income
- $13.0B
- Operating margin
- 20.1%
- Net income
- $9.9B
- Free cash flow
- -$1.2B
Does the profit turn into cash?
Q3 FY2026: free cash flow of -$1.2B against net income of $9.9B in the quarter.
- Operating cash flow$115.8B
- Capital expenditure$69.7B
- Free cash flow$46.1B
- Net income$60.5B
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Revenue - Disaggregation of Revenue (Details). The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Advertising | $63.1B | 97.6% |
| Other revenue | $1.1B | 1.7% |
Segments
| Family of Apps | $64.2B | 99.3% |
| Reality Labs | $443.0M | 0.7% |
Geographic markets
| United States and Canada | $26.2B | 40.6% |
| Asia-Pacific | $17.0B | 26.3% |
| Europe | $14.0B | 21.7% |
| Rest of World | $7.4B | 11.4% |
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q3 FY2026 | Of revenue | Source |
|---|---|---|---|
| Total costs and expenses | $51.6B | 79.9% | Source10-Q, us-gaap:CostsAndExpenses, as reported in the 10-Q filed 2026-10-22 |
| Income (loss) from operations | $13.0B | 20.1% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-10-22 |
Operating income by segment
Where the operating profit is earned, as the filing reports it.
Segments
| Family of Apps | $17.1B | 131.8% |
| Reality Labs | -$4.1B | -31.8% |
Shares of operating income. Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-10-22
Operating figures the company states
From the text of the filing rather than its statements, each with the sentence that states it.
View source
Ad impressions delivered across our Family of Apps in the third quarter of 2026 increased by 10% year-over-year.
View source
Average price per ad in the third quarter of 2026 increased by 14% year-over-year.
View source
During the third quarter of 2026, worldwide ARPP was $17.72, an increase of 23% from the third quarter of 2025.
View source
During the third quarter of 2026, worldwide ARPP was $17.72, an increase of 23% from the third quarter of 2025.
View source
The higher employee compensation was mainly from increases in share-based compensation expense during the three and nine months ended September 30, 2026, partially offset by a 16% decrease in employee headcount in our engineering and other technical functions.
View source
Family daily active people (DAP) was 3.64 billion on average for September 2026, an increase of 3% year-over-year.
View source
Family daily active people (DAP) was 3.64 billion on average for September 2026, an increase of 3% year-over-year.
View source
Headcount was 66,775 as of September 30, 2026, a decrease of 15% year-over-year.
View source
Headcount was 66,775 as of September 30, 2026, a decrease of 15% year-over-year.
View source
increases were partially offset by a decrease in employee compensation related to an 18% decrease in employee headcount from September 30, 2025 to September 30, 2026 in our marketing and sales functions.
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement15 lines, as presented in the 10-Q
Cash flow statement7 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
| Line | Q3 FY2026 | A year earlier | Change | Source |
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Net income | $9.86B | $2.71B | +264% | Source10-Q, us-gaap:NetIncomeLoss, as reported in the 10-Q filed 2026-10-22 |
| Cash flows from financing activities | ||||
| Payments for dividends and dividend equivalents (shown as a deduction) | ($1.36B) | $1.33B | +2.3% | Source10-Q, us-gaap:PaymentsOfDividends, as reported in the 10-Q filed 2026-10-22 |
| Statement of Cash Flows | ||||
| Cash, cash equivalents, restricted cash, and restricted cash equivalents at end of the period | $24.35B | $11.94B | +104% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-22 |
| Reconciliation of cash, cash equivalents, restricted cash, and restricted cash equivalents to the condensed consolidated balance sheets | ||||
| Cash and cash equivalents | $11.22B | $10.19B | +10% | Source10-Q, us-gaap:CashAndCashEquivalentsAtCarryingValue, as reported in the 10-Q filed 2026-10-22 |
| Restricted cash and restricted cash equivalents, included in prepaid expenses and other current assets | $597.0M | $142.0M | +320% | Source10-Q, us-gaap:RestrictedCashAndCashEquivalentsAtCarryingValue, as reported in the 10-Q filed 2026-10-22 |
| Restricted cash and restricted cash equivalents, included in other assets | $12.54B | $1.61B | +678% | Source10-Q, us-gaap:RestrictedCashAndCashEquivalentsNoncurrent, as reported in the 10-Q filed 2026-10-22 |
| Total cash, cash equivalents, restricted cash, and restricted cash equivalents | $24.35B | $11.94B | +104% | Source10-Q, us-gaap:CashCashEquivalentsRestrictedCashAndRestrictedCashEquivalents, as reported in the 10-Q filed 2026-10-22 |
Balance sheet25 lines, as presented in the 10-Q
About this data
- Source
- Meta 10-Q, accession 0001628280-26-066773, filed Oct 22, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Meta's model up, and what could bend it
Competitive edge
The apps earn more than the whole company
Family of Apps earned $17.1B from operations, 131.8% of company operating income, a 26.7% margin even in a quarter carrying the legal charge.
The detail
Family of Apps brought in $64.2B, 99.3% of revenue, and earned $17.1B from operations. Reality Labs had $443M of revenue and lost $4.1B, so the apps earned 131.8% of operating income and Reality Labs subtracted 31.8%. The filing says the apps' cost increase came mostly from infrastructure, legal-related costs, engineering pay and third-party AI token costs.1
AnalysisThis is what lets Meta fund a research unit that lost $4.1B on $443M of revenue, and an AI build-out, while still reporting a profit. The advantage holds for as long as advertisers keep paying for results on the apps.
Serving the ads takes only 20.69% of revenue
Gross margin was 79.3% even after cost of revenue grew 45.2%, so most of each extra ad dollar is left to fund research and capacity.
The detail
Cost of revenue, mostly data centers, servers, network, energy and third-party cloud, was $13.4B, 20.69% of revenue, up 2.73 points from a year earlier. That left a gross margin of 79.3%. The filing attributes the increase to higher infrastructure expenses.1
AnalysisOnce the apps, the ad systems and the data centers exist, showing one more ad costs little. That is why price gains flow largely to gross profit, and why the main pressure on margins comes from building capacity, much of it booked in research and development, rather than from serving ads.
3.64 billion people use the apps each day
The Family apps reached 3.64 billion people a day, and no region supplied more than 40.6% of revenue, spreading the base widely.
The detail
Family daily active people averaged 3.64 billion in September, up from 3.54 billion. By customer address, United States and Canada brought 40.6% of revenue, Asia-Pacific 26.3%, Europe 21.7% and Rest of World 11.4%. The filing notes that impression growth comes mostly from regions that monetize at lower rates, such as Asia-Pacific.1
The filing calls daily active people an estimate with an error margin it puts at about 3% of the worldwide figure, and says the slight decline in the first quarter came from internet disruptions in Iran and a restriction on WhatsApp in Russia.1
AnalysisReach across Facebook, Instagram, Messenger and WhatsApp gives advertisers many audiences in one buying system, and gives Meta signals from its own apps as outside data tightens. With people growing 3%, that reach now pays off through price rather than through more users.
What to watch
The legal bill is not yet closed
Part of the attorneys general agreement is contingent and unaccrued, and a court imposed a further civil penalty after the quarter, which Meta intends to appeal.
The detail
Part of the August agreement becomes payable only if industry peers such as YouTube and TikTok adopt similar teen protections and make matching payments; those amounts were not accrued. After the quarter ended, a New Mexico court imposed a civil penalty with post-judgment interest. Meta has accrued an amount, intends to appeal, and may need to post a bond.1
Further personal injury bellwether trials, a school district trial, a hearing on the Federal Trade Commission consent order, and European Digital Services Act proceedings on minors are scheduled or open. The filing calls such matters "inherently unpredictable."1
AnalysisGeneral and administrative expense took 23.0% of revenue this quarter. How much of that recurs depends on outcomes the company does not control, so the underlying margin is hard to read until these cases settle within what has been accrued.
Rules and platforms keep narrowing ad signals
Advertising is 97.6% of revenue, and EU rulings plus Apple and Google changes keep limiting the data that makes those ads worth paying for.
The detail
Advertising brought $63.1B, 97.6% of revenue, from marketers who, the filing says, "do not have long-term advertising commitments with us." Targeting relies partly on signals from websites and apps Meta does not control, and Apple's iOS changes are named as a continuing drag on the budgets marketers commit.1
The European Commission ruled that the "subscription for no ads" model does not comply with the Digital Markets Act. Meta has appealed, and says further required changes could mean "a significant impact to our European business and revenue." Europe brought $14.0B, 21.7% of revenue.1
AnalysisSo far the ad systems have outpaced the signal loss: price per ad rose 14%. If that balance turns, the price per ad is where it would most likely show first, before the user count.
The AI build-out has to earn its cost
Cost of revenue grew 45.2% and research and development 32.4%, both faster than revenue's 26.1%, for AI products whose returns the filing calls uncertain.
The detail
The filing names data centers, technical infrastructure, third-party cloud services and third-party AI token costs as the main drivers of higher cost of revenue and research and development. Research and development was $20.1B, 31.04% of revenue, even as headcount fell 15% to 66,775 and engineering and technical staff fell 16%.1
The risk factors say there "can be no assurance that the usage of AI will enhance our products or services or be beneficial to our business," that the company depends on hardware, computing power and energy whose availability and pricing it does not control, and that commitments under the Accord on Super Intelligence add compliance cost.1
AnalysisEquipment bought now becomes depreciation for years whether or not the AI products succeed, so the cost is largely fixed in advance while the revenue it is meant to produce is not.
Sources
- 1.Meta 10-Q for the period to 2026-09-30 (the filing), Oct 22, 2026, read Nov 2, 2026
Meta, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Meta's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What has to go right for the AI build-out to pay back?
Which figures would show the spending turning into revenue, how far the legal bill could still move, and what the cash flow statement says about funding from here.
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Have a question about Meta?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- How much of Meta's operating margin fall came from the attorneys general charge, and how much from AI infrastructure costs?
- Why are Meta's ad prices rising faster than its ad impressions, and what would show that trend reversing?
- How long can Meta keep capital spending above operating cash flow, and how is the gap being funded?
Business Lens describes Meta from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.