Meta Platforms (META) reported earnings after the close and the stock fell between 6% and 12% the next day. The shares are now down 9% off the September highs, putting META in a market correction. The September rally was driven by the success of the Muse platform, which the company talked about heavily on the call.
The numbers were good
Revenue came in at $64.6 billion, up 26% year-over-year and above estimates. Reported EPS was $3.83, which included a nearly $10 billion legal settlement charge. Stripping out that charge and its tax effect, earnings were $7.40 a share, also above expectations. The underlying business carried the quarter with no issues. Fourth-quarter revenue guidance is $73 billion to $76 billion. The company did not give full-year revenue guidance, which has become a sticking point.
Why the stock fell
The problem is spending. Capex guidance was narrowed and raised: the old range was $130 billion to $145 billion, now $135 billion to $145 billion - a tighter, higher band. Total expense guidance was lifted to $175 billion to $179 billion. A filing out the same day showed future spending commitments, mostly for computing power and data center leases, well above the level reported in July.
META is hit harder than peers for a specific reason. It funds all of its data center costs through advertising alone, with no cloud customers to share the bill. Alphabet (GOOGL) and Microsoft (MSFT) rent cloud capacity to outside customers, so they spread the cost. META has to fully fund its buildout itself. If GOOGL or MSFT raise spending, their stocks may not react the same way.
A second driver is dilution. META created a new Class C share class and issued new stock, diluting existing holders. That share issuance is a major reason the stock went underwater. Pivotal Research took a more positive view, saying the new Class C issuance ended short-term speculation that META would announce some kind of equity deal.
Broad market mood added pressure. Oil is rising, which weighs on the whole market while interest rates stay high.
Analyst reaction
Six firms raised price targets after the report, and no one's core thesis changed. There is strong optimism around Muse and some concern about covering the AI spend, but the group stays very bullish on META.
- Barclays: raised to $880, overweight; called Muse a game changer.
- Citi: raised to $9005 (as stated), buy; says META is in an "AI super cycle."
- JP Morgan: raised to $940, overweight; highlighted AI-driven advertising gains, which matter because ads must foot the capex bill.
- DA Davidson: raised to $800 from $700, buy.
- Bank of America: raised to $845, buy.
- TD Cowen: cut to $850 from $865, kept buy; called earnings solid but expects META to issue equity or debt to finance AI infrastructure over coming years.
- Wells Fargo: trimmed target by $5, still overweight.
- Piper Sandler: cut target about $25 to $850, overweight.
The pattern across hyperscalers repeats: great results, then a message that the business is so good they want to borrow and spend more to make even more of it. That is where the market is tripping, mainly over the new share issuance and dilution. Credit risk worries also sit in the background.
A trade idea
I like META for the long term and think the stock will be fantastic over time. Issuing extra stock or convertible shares, with Alphabet (GOOGL) as a leader doing the same, can cap the upside for a short period. Options are a risk-adjusted way to get in.
One example is a cash-secured put. Looking at December, the 660 strike was trading around $40.35. It works like a covered call but lets you keep your cash. If the stock trades lower, you get assigned the shares and collect a premium cushion for that risk. If it trades higher, you keep the full premium.
