Meta enters its third-quarter report with an unusual split personality. Its advertising machine is growing at a pace that would be impressive for a company a fraction of its size, yet Wall Street expects earnings per share to shrink from a year ago. That gap between revenue strength and profit pressure is the whole story this quarter. The stock has rallied hard on the belief that AI is making Meta's ads better. Now the company has to show that the bill for building that AI is not swamping the payoff.
The Street is looking for revenue of about $63.18 billion, up roughly 23% from $51.24 billion a year ago, alongside earnings of $6.39 per share, down nearly 12% from $7.25. Management guided to revenue of $61 billion to $64 billion, so consensus sits in the upper half of that range, closer to the top than the midpoint. The bar is not unreasonable, but it assumes ad demand stayed firm through the summer. The earnings whisper of $6.65 runs about 4% above consensus, a meaningful margin suggesting traders expect Meta to clear the published estimate on profits, not just meet it.
The prior call gave investors a lot to test. Ad revenue in the Family of Apps grew 27% in the second quarter, and management credited AI-driven ranking for the strength, citing its new generative recommender lifting Facebook ad clicks by 8.3% and conversions by 15.7%. The annual run rate of Advantage+ end-to-end campaigns jumped to $75 billion from $60 billion. If those gains are real and spreading, third-quarter revenue should land near the top of guidance, and the implied slowdown from 28% growth to the low-to-mid 20s should look like conservatism rather than fatigue. A result near the bottom of the range would raise questions about whether the ranking improvements are a one-time step up rather than a durable engine.
The cost side is where the narrative could crack. Total expenses climbed 55% in the second quarter, operating margin fell to 31% from a steady 40% to 41%, and free cash flow nearly vanished at $784 million as quarterly capital spending hit $31.1 billion. Some of that damage came from one-time items, including $2.4 billion in legal charges and $1.2 billion of severance tied to the May headcount reduction of about 8,000 people. A cleaner quarter should show margins recovering partway as those charges roll off and the smaller workforce lowers payroll. If margins stay stuck near the low 30s without those charges, it would signal that depreciation and AI infrastructure costs are becoming the new baseline. Management lifted its 2026 capital spending floor to $130 billion to $145 billion, marking the third straight upward move, and still declines to frame 2027. Any early read on next year's spending, debt that already rose to $83.7 billion, and the BlackRock data center venture will be scrutinized.
Investors also want proof that the newer revenue lines are more than press releases. Other Family of Apps revenue crossed $1 billion for the first time, and management talked up a public API, the Meta One subscription, a business agent platform used by over a million businesses weekly, and even reselling compute at a premium. Early traction figures here would support the idea that the capex surge can earn returns beyond advertising.
The market has already voted. Shares are up about 41% since the last report against roughly 6% for the S&P 500, sitting well above the 200-day moving average though still about 5% below the post-earnings high near $780. Sentiment has edged from mildly bearish to mildly bullish, a modest shift but one that removes the cushion of low expectations. The decisive question is whether Meta can show revenue near the top of its range while proving that second-quarter margin and cash-flow damage was a trough, not a new normal.