META's Q2 Earnings Miss Estimates, Revenues Rise Y/Y on Ad Growth

Meta Platforms META reported second-quarter 2026 earnings of $6.18 per share, down 13.4% year over year and lagging the Zacks Consensus Estimate by 12.96%. Revenues climbed 28% year over year to $60.80 billion and surpassed the consensus mark by 0.98%.

Strong advertising demand and improving monetization supported the top line. Ad impressions increased 14% year over year, while the average price per ad advanced 12%. However, sharply higher infrastructure, compensation and legal-related costs weighed on profitability.

META's Ad Engine Drives Top-Line Growth

Family of Apps revenues, accounting for 99.3% of total revenues, increased 28% year over year to $60.37 billion. Advertising revenues rose 27% year over year to $59.36 billion, reflecting healthy engagement, user growth and ad-load optimization across Meta’s services.

Family of Apps other revenues jumped 72.7% year over year to $1.01 billion, surpassing $1 billion for the first time. Growth was primarily driven by WhatsApp paid messaging and subscription revenues, providing Meta with additional monetization avenues beyond advertising.

Reality Labs revenues increased 16.5% year over year to $431 million, driven by growth in AI glasses sales, partially offset by lower Quest headset revenues.

Meta’s AI Gains Lift Engagement and Ads

Family daily active people averaged 3.60 billion in June, up 3% year over year. Instagram reached 2 billion daily active users, while Threads surpassed 500 million monthly active users. Global time spent on Instagram grew at a double-digit rate, supported by improvements to Feed and Reels recommendations.

Meta also reported measurable gains from AI-powered advertising systems. Advances in user understanding, ad ranking and sequence learning generated an 8.3% increase in ad clicks and a 15.7% uplift in Facebook conversions. Advantage+ solutions reached an annual revenue run rate of more than $75 billion.

META’s Costs Pressure Margins and Earnings

Total costs and expenses surged 55% year over year to $42.03 billion. The increase included $2.40 billion in charges related to legal proceedings and $1.18 billion in severance expenses tied to the May 2026 headcount reduction.

Operating income declined 8.2% year over year to $18.78 billion, while the operating margin contracted to 31% from 43% in the year-ago quarter. Excluding legal charges and severance expenses, META said operating income would have increased 9% year over year. Higher employee compensation, depreciation, data center operating costs, cloud spending and third-party AI token costs remained major expense drivers.

Family of Apps operating income fell 6.3% year over year to $23.39 billion. The segment continued to generate substantial profits, but elevated investment levels more than offset the benefit of strong revenue growth during the quarter.

Reality Labs segment operating loss widened to $4.62 billion from $4.53 billion, reflecting Meta’s continued spending on augmented and virtual reality products.

META’s Cash Flow Funds Heavy AI Buildout

Cash flow from operating activities totaled $31.86 billion. Capital expenditures, including principal payments on finance leases, nearly doubled to $31.08 billion from $17.01 billion, leaving free cash flow of $784 million.

Meta ended the second quarter of 2026 with $90.26 billion in cash, cash equivalents and marketable securities. Long-term debt stood at $83.66 billion. 

The company issued nearly $25 billion of long-term debt during the reported quarter as it expanded the mix of capital used to fund long-duration infrastructure projects.

Meta’s Outlook Raises Spending Visibility

For the third quarter of 2026, Meta expects revenues between $61 billion and $64 billion. The forecast assumes foreign currency will create an approximately 1% headwind to year-over-year revenue growth.

The company raised the lower end of its 2026 expense outlook and now expects total expenses of $165 billion to $169 billion. Meta continues to expect 2026 operating income to exceed the 2025 level and projects a tax rate of 15-17% for the remaining quarters.

Meta narrowed its capital expenditure forecast to $130 billion-$145 billion from $125 billion-$145 billion.

Zacks Rank & Stocks to Consider

Currently, Meta Platforms carries a Zacks Rank #3 (Hold). 

Shopify SHOP, Sandisk SNDK and HubSpot HUBS are some better-ranked stocks in the broader Zacks Computer and Technology sector. Each of the three stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shopify, Sandisk and HubSpot are expected to report their quarterly results on Aug. 5. Shares of Sandisk have jumped 327.9%, while Shopify and HubSpot have dropped 19.8% and 37.5%, year to date, respectively.

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This article originally published on Zacks Investment Research (zacks.com).

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