Meta Reports on Oct. 21. I'd Consider Buying the Stock Before It Does.
Key Points
Meta's third-quarter 2025 results included a one-time, non-cash tax charge of $15.9 billion.
Management's guidance points to third-quarter revenue growth of around 19% to 25%.
Meta expects to spend $130 billion to $145 billion on capital expenditures in 2026.
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Meta Platforms (NASDAQ:META) will report its third-quarter results after the market closes on Wednesday, Oct. 21. Shares are at about $743 as I write -- roughly 6% under the stock's record close of $790, set in August 2025.
The stock has also gained about 30% since Aug. 31.
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The earnings figure in the report might look stunning. Analysts expect earnings per share of $6.77, according to FactSet, compared to just $1.05 a year ago.
But last year's number was distorted by a one-time charge. I'd buy the stock before the report anyway, though not because of a sixfold jump in earnings. What counts more is what the update says about Meta's ad business and its massive artificial intelligence (AI) budget.
Image source: Getty Images.
A distorted comparison
Meta's third-quarter 2025 earnings included a one-time, non-cash income tax charge of $15.9 billion linked to the One Big Beautiful Bill Act. Without it, Meta said its diluted earnings per share would've been $7.25 rather than $1.05.
Against that $7.25, FactSet's $6.77 estimate is around 7% lower. The gap probably reflects higher spending. Management also expects a tax rate of 15% to 17% for the rest of 2026, over the 14% Meta would've paid in the year-ago quarter without the charge.
Put another way, investors shouldn't read much into a big jump in earnings per share on Oct. 21.
Ad growth needs to hold up
Showing the strength of demand for Meta's ads, advertising revenue climbed 33% year over year in the first quarter of 2026. In the second quarter, ad revenue rose 27% to $59.4 billion. And management's guidance points to further deceleration. Meta expects third-quarter revenue of $61 billion to $64 billion -- growth of around 19% to 25% from $51.2 billion a year ago.
What would I like to see? Revenue in the top half of that range would be a solid start. But what's behind the growth matters even more.
In the second quarter, ad impressions rose 14% year over year, and the average price per ad was up 12%. CFO Susan Li tied the higher prices partly to stronger ad performance, plus improving economic conditions and currency.
Meta also said its AI-driven upgrades to its ad-ranking system led to an 8% boost in ad clicks and a 16% lift in conversions on Facebook in the quarter. If the average price per ad keeps rising at a double-digit rate in the third quarter, it suggests advertisers are paying more for ads that work better for them.
Can ads keep paying for the AI build-out?
The other half of the report is spending. Meta expects 2026 capital expenditures (including principal payments on finance leases) of $130 billion to $145 billion, up from $72.2 billion in 2025. Through June, it had spent $50.9 billion. Even the bottom of the range implies about $79 billion for the second half, or roughly $40 billion a quarter, up from $31.1 billion in the second quarter.
That spending is already hitting cash flow. Free cash flow dropped to just $784 million in the second quarter, versus $8.5 billion a year before. And long-term debt rose to $83.7 billion as of June 30, from $58.7 billion at year-end 2025.
Third-quarter free cash flow could slip below zero. A year ago, it was $10.6 billion.
Investors might also get a first look at 2027. A year ago, management used its third-quarterearnings callto say capital expenditure dollar growth would be "notably larger" in 2026 than in 2025. In July, Li held off on a 2027 number.
"Infrastructure planning remains highly dynamic and even this year, there are a range of outcomes embedded in our outlook," she said on the second-quarterearnings call
I can live with a weak free cash flow quarter if ad revenue keeps growing at roughly 20% or higher. After all, Meta still expects its 2026 operating income to be above 2025's $83.3 billion. A far bigger 2027 spending plan paired with ad growth falling below that rate, though, might make me rethink the stock.
Of course, the report may push the stock down, especially after its climb since late August. But at around 22 times expected 2027 earnings, I think shares are reasonably priced for a company whose ad sales rose 27% last quarter. At that price, Meta doesn't need a blowout quarter -- just revenue growth in management's range and a spending plan the ad business can cover.
Overall, I'd consider buying shares ahead of the report. But, given the risks, probably gradually rather than all at once.
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Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
