Meta trades cheaper than before earnings, even after revenue growth. Stock drops over 9%.
Meta released its Q2 2026 results on Wednesday, July 29, beating analyst revenue estimates with a 28% increase to $60.8 billion. However, profit fell short of expectations and declined 14% year-over-year, primarily due to the metric the report ultimately hinged on: free cash flow. Because of record AI infrastructure investments, free cash flow plunged from $8.5 billion to just $784 million, which sent the stock down more than 7%.
Key points
Revenue of $60.8 billion, up 28% year-over-year
Net income of $15.8 billion, a year-over-year decline of -14%, diluted EPS of $6.18, a 13% year-over-year drop and below the analyst consensus.
Operating margin fell from 43% to 31% due to a 55% increase in expenses, including $2.4 billion in legal reserves and $1.18 billion in severance costs after the May 2026 layoffs.
Capital expenditures reached $31.1 billion, and free cash flow plunged to $784 million from $8.5 billion a year earlier.
Meta narrowed its full-year capex outlook to $130-145 billion and raised the lower end of its expense outlook to $165-169 billion.
Meta Platforms reported its Q2 2026 results on July 29. The number that best sums up the quarter is the gap between the pace of revenue growth and the pace of expense growth: while revenue grew 28%, total expenses rose 55%, and the operating margin shrank from 43% to 31%. Meta $META thus confirmed that its advertising business remains exceptionally strong. At the same time, it showed how sharply its decision to invest amounts in artificial intelligence that were unimaginable just two years ago is reflected in the results. An investor following Meta therefore isn't just asking whether the company is growing. The key question remains whether the tens of billions of dollars poured into data centers and computing power will translate into faster growth of the advertising business, new revenue streams, and improving cash flow, or whether it is, for now, largely spending with an uncertain return.
AI is already accelerating our core business and opening doors to entirely new business opportunities.
CEO Mark Zuckerberg stated in a press release.
Second-quarter results in numbers
Metric (in millions USD) | Q2 2026 | Q2 2025 | Year-over-year |
|---|---|---|---|
Revenue | 60,801 | 47,516 | +28% |
Total expenses | 42,026 | 27,075 | +55% |
Operating income | 18,775 | 20,441 | -8% |
Operating margin | 31% | 43% | -28% |
Net income | 15,848 | 18,337 | -14% |
Diluted EPS (USD) | 6.18 | 7.14 | -13% |
Operating cash flow | 31,862 | 25,561 | +25% |
Capex incl. finance leases | 31,078 | 17,012* | +83% |
Free cash flow | 784 | 8,549 | -91% |
*calculated from purchases of property and equipment ($16,538 million) and principal payments on finance leases ($474 million) for Q2 2025, as reported in the cash flow statement
Below the surface of the table lie two important points. First, operating cash flow grew faster than revenue, up 25% to $31.9 billion, confirming that the core business is generating ever more cash. Second, this cash was almost entirely consumed by capital expenditures, which rose 83% year-over-year. Free cash flow thus fell to a fraction of last year's level, even though it had reached $12.4 billion in Q1 2026. The decline is therefore not a sign of a deteriorating business; it is a direct consequence of the decision to fund AI infrastructure construction primarily from internal resources rather than postponing investments.
The second key point is the research and development expense line, which rose 67% to $21.7 billion and is by far the fastest-growing expense category. It reflects a combination of higher depreciation from newly commissioned AI infrastructure – where depreciation and amortization rose 46% to $6.4 billion – growing stock-based compensation expenses of $7.7 billion, up 58% year-over-year, and the hiring of researchers for Meta Superintelligence Labs.
Advertising business remains the main engine
Quality of growth: more impressions and higher prices
Even after years of AI investments, Meta is still primarily an advertising company. Ad revenue reached $59.4 billion, or 98% of total revenue. The 27% year-over-year growth (26% on a constant-currency basis) was comprised of two components that complemented each other more evenly this time than in previous quarters: the number of ad impressions rose 14%, and the average price per ad rose 12%. This is a healthier mix than pure volume growth, as it shows that Meta can raise prices without having to aggressively increase the ad load and risk degrading the user experience.
Advertising metric (year-over-year) | Q1 2026 | Q2 2026 |
|---|---|---|
Revenue growth | +33% | +28% |
Ad impression growth | +19% | +14% |
Price per ad growth | +12% | +12% |
Daily active people (DAP) growth | +4% | +3% |
The growth rate of impressions slowed from 19% to 14%, while the price per ad remained stable. A slowdown in volume with a stable price is a typical pattern of a later cycle phase, when a company stops growing primarily through inventory volume and increasingly relies on better targeting and higher value per ad slot for the advertiser. This is exactly the area where Meta argues that the benefit of AI recommendation systems is evident.