Meta Platforms (NASDAQ: META) delivered a quarter of two very different stories. The top line is accelerating. The bottom line is a cost structure consuming that growth faster than the company can monetize it.
Revenue hit $60.80 billion, up 28% year-over-year and a shade above the $60.22 billion consensus. Ad impressions rose 14%, average price per ad climbed 12%, and constant-currency revenue growth was 27%. The advertising machine is running well. The problem is everything else.
Total costs and expenses surged 55% to $42.03 billion, more than double the revenue growth rate. The headline drivers are transparent: $2.40 billion in legal charges and $1.18 billion in severance from the May 2026 headcount reduction of roughly 8,000 employees. The underlying trend is just as stark. Research and development spending jumped to $21.66 billion from $12.94 billion a year ago, a 67% increase reflecting the infrastructure build for AI and immersive computing. Cost of revenue rose 33% to $11.33 billion, driven by the data center and server capacity that underpins both ad delivery and the Reality Labs roadmap.
Operating margin compressed to 31% from 43% a year ago. That is a 1,200 basis point swing in twelve months. Some of it is one-off — the legal charges and severance added roughly 590 basis points of pressure — but the R&D and capex trajectory is structural. This is a company choosing to spend into its future at a pace that depresses current earnings.
Diluted EPS fell 13% to $6.18, missing the $7.19 estimate by 14%. Net income dropped to $15.85 billion from $18.34 billion. The miss was not a revenue problem. It was entirely a cost problem.
The capital expenditure number deserves the most attention. Capex reached $31.08 billion in the quarter alone, nearly double the $16.54 billion spent in Q2 2025. That pushed free cash flow to just $784 million, down from $8.55 billion a year ago. For context, free cash flow in the first half of 2025 was $18.88 billion; in the first half of 2026 it is $13.17 billion. The decline is almost entirely capex-driven. Meta raised its full-year capex guidance range to $130-145 billion, narrowing from $125-145 billion, which implies the back half will see spending moderate somewhat but remain elevated.
The balance sheet remains fortress-grade — $90.26 billion in cash and marketable securities against $83.66 billion in long-term debt — but the debt figure jumped from $58.74 billion at year-end 2025, reflecting the $24.91 billion in debt issuance during the quarter. The company is funding its capex binge with a mix of operating cash flow and leverage.
Management raised the lower end of full-year expense guidance to $165-169 billion, incorporating the Q2 legal charges. The Q3 revenue guide of $61-64 billion implies growth deceleration to roughly 14-20% year-over-year, a notable step down from Q2's 28% pace. The tax rate outlook was also raised to 15-17% from 13-16%, adding another modest headwind to net income.
The May headcount reduction — roughly 10% of the workforce — is a cost-cutting signal almost entirely offset by the scale of the infrastructure build. The company ended the quarter with 75,472 employees, down just 1% year-over-year, and noted that most of the 8,000 affected employees will be gone by end of Q3. That will provide some relief in the fourth quarter, but the R&D line suggests Meta is simply reallocating headcount from operations to engineering.
Meta's AI and metaverse ambitions are no longer theoretical line items. They are consuming cash at a rate that is compressing earnings and free cash flow in real time. The revenue growth is real and the ad business is healthy, but the expense structure is growing faster than the top line can support at current margins. The $784 million free cash flow print is the number that will dominate investor conversations: it is a reminder that even a $60 billion revenue quarter can leave almost nothing for shareholders after the infrastructure bill comes due.