Meta’s ad business continues to be the core of its success as the company’s AI bill is exploding. The third quarter results announced on October 21, 2026, demonstrated that its user base is growing steadily and profit is rising sharply.
Its revenue grew by 26% year-over-year to $64.6 billion, but expenses increased by 68%. Such a strong jump in costs relative to revenues should be of concern to investors and advertisers.
Meta’s Audience Keeps Growing
Start with the use. The number of people who use Meta’s family of apps on a daily basis increased by 40 million during the quarter, reaching 3.64 billion. This number includes all the social media sites, with Messenger, WhatsApp, and Threads included.
The growth comes from several key markets. Social Media Today reports that India is now Meta’s largest single user market, fueled by increasing connectivity. The company is also seeing success in Asia Pacific. According to Merca 2.0, ad impressions in the region have increased by 24% this year.
Threads plays a role as well. Meta announced that Threads had overtaken X in the number of monthly active users, which was revealed by the founder in an interview last month. The figure is supported this quarter by the company’s own numbers. In this case, trust must be placed in the company’s data. This gives Meta a big platform for all the products it tests, including artificial intelligence.
Ad Impressions Slow, Prices Rise
Overall ad impressions across Meta’s apps rose 10% in the quarter. It is a slight decrease than in the company’s more recent quarters. Oddly enough, given that Meta has added ad placements and Threads is gaining traction, the decline can be partially explained by the fact that Threads’ ads have already reached a saturation point. That is analysis from Social Media Today, which has nothing to do with a Meta statement.
Meta offset the slowdown with an increase in prices. The average ad prices rose 14%, which is not a good sign for marketers. Meta’s counter-argument is that its ads are more valuable because AI improves targeting and advertisers will judge this claim by their own return on spend.
Revenue Beats Meta’s Own Forecast
The $64.6 billion revenue figure is worth a closer look. Meta guided to a range of $61 billion to $64 billion for the quarter. The actual revenue figure comfortably exceeded the top end of this range. According to the company’s filing with the SEC, the 26% increase, on both a reported and constant currency basis, was driven by factors other than currency
Ads are the growth driver. Social Media Today reports that the ad business is “comfortably propping up its results” despite soaring expenses. That is, in a sense, an accurate reflection of the figures.
Costs Jump 68%
Total costs and expenses reached 51.61 billion, up 68 percent to the same period last year. Social Media Today attributed the increase mostly to capital expenditures. The filing added one more important detail. The total includes a litigation charge, so the 68 percent growth factorizes both AI and legal expenditures, and the figure should not be seen as a pure reflection of AI costs. Capital expenditures themselves reached $34.91 billion in the quarter, including principal payments on finance leases. For context, they were $31.08 billion in the second quarter. Meta has projected full-year capital spending to reach between $130 billion and $145 billion.
The trend was established earlier as well. In the second quarter, revenue grew by 28 percent to $60.8 billion, yet net income fell 14% to $15.85 billion, with costs rising by 55 percent that quarter, including litigation charges and severance pay. Third quarter costs grew even faster. Revenue keeps growing, but it is being overtaken by spending increases.
Meta advised the market earlier that expenses would continue to rise in tandem with AI investments. The company has also signaled that it would make substantial infrastructure investments in the United States. The charts in the report illustrate the trend, showing sharply rising costs of AI development.
Cash Flow Turns Negative
The most striking figure is, of course, in the cash flow segment. The cash flow from operating activities was $32.79 billion. Free cash flow was negative $2.12 billion in Meta’s case. In other words, the company spends more money on expansion than it gains with operations.
However, the company has enough reserves as cash, cash equivalents, and marketable securities totaled $82.45 billion on September 30, 2026. The company also paid $1.36 billion in dividends and their equivalents.
The second quarter result was already a concern as free cash flow dropped to $784 million then, down from $8.55 billion on a yearly basis, according to Meta’s earnings release published by TechJack Solutions. Now it turned negative.
One negative quarter of free cash flow is not necessarily a bad sign, but the trend should be monitored by investors. It will be interesting to see if the growth of advertising will continue to keep up with expenses. This metric should be monitored by investors every quarter.
Reality Labs and the Glasses Problem
Meta’s bets on hardware are paying off with just a small increase in revenue for the Reality Labs unit, which makes AI glasses and VR headsets.
It is difficult to compare those sales to costs since the glasses are linked to Meta’s larger spending on artificial intelligence. Social Media Today contends that backlash over misuse of the glasses has depressed sales. That is the publication’s position and it has not been substantiated in the figures cited here.
Muse Faces Trust Questions
This casts doubt on Muse, Meta’s artificial intelligence agent. Meta hopes that consumers will adopt it widely enough that it will earn a cut of sales made via the application. However, Muse has had a rocky start to its lifespan.
Last month, one user alleged that the bot had leaked his house address without his permission when setting up a pickup via Facebook Marketplace. This week, it emerged that security firm Claroc had been able to acquire massive amounts of data regarding user queries by simple exploration. Meta has asserted that Muse was designed with data security in mind and is taking steps to reassure its customers.
Another issue is user retention. A graphic on X, shared by Morgan Stanley, demonstrated that the number of users of Muse dropped dramatically two weeks after installing the application. According to Social Media Today, this follows a typical pattern for other AI chatbots, although it was not as extreme a drop as seen elsewhere. Consequently, the data is difficult to interpret – it does not demonstrate that Muse is doomed to failure, but it has not demonstrated that it will be a success or even generate revenue for Meta either.
Headcount Falls 15%
Another significant statistic is the company’s personnel. On September 30, 2026, the number of employees was 66,775, down by 15% from a year earlier, according to Meta’s numbers. The reduction follows layoffs in May, which added $1.18 billion to the second-quarter expenses, according to Verdict.
Social Media Today journal offers the primary explanation for the reduction – the shift towards the application of AI technologies instead of human labor. The company has not confirmed this assumption explicitly in the provided data, but it may be the reason, according to the report. In addition, a decrease in the number of workers results in an increase in revenue per employee, which is also illustrated in the report. However, this factor is not explicitly indicated.
What Marketers Should Do Now
Escalating prices require a careful analysis of the return on investment (ROI). It is essential to focus on the cost per impression in each area and measure the results separately for Threads and Reels, as growth rates differ significantly. Additionally, the increase in prices should be considered as a risk. A gradual growth of impressions and prices at the same time can harm small-scaled cooperation. Therefore, it is necessary to set price limits per campaign and constantly monitor weekly statistics.
Besides, it is crucial to observe the impact of Muse on advertising. The appearance of new Meta products, which are likely to absorb some of the budgets of advertisers, should not be overlooked. It is worth considering the preparation for the launch of new advertising formats within the capabilities of the company.
The next annual report should be studied with the same attention and with the same two questions in mind. First, is the trend of revenue growth over expenses changing? Second, is free cash flow recovering? These two factors are significant for predicting future costs and advertising prices in 2027.
Frequently Asked Questions
Q 1: How much revenue did Meta report in Q3 2026?
Meta reported $64.6 billion, up 26% year over year. The increase was the same on a constant currency basis. That result came in above the company’s own guidance range of $61 billion to $64 billion.
Q 2: How many people use Meta’s apps daily?
Family daily active people reached 3.64 billion, up 40 million in the quarter. The figure counts users across Facebook, Instagram, Messenger, WhatsApp, and Threads. It is a cumulative count, so one person using several apps is counted once.
Q 3: Why did Meta’s expenses rise 68%?
Total costs and expenses reached $51.61 billion. Social Media Today ties the rise mainly to capital expenditures. Meta’s filing notes that the total also includes a litigation charge.
Q 4: What were Meta’s capital expenditures?
Capital expenditures were $34.91 billion in the quarter, including principal payments on finance leases. Meta expects full-year spending of $130 billion to $145 billion. Those figures show how fast AI infrastructure costs are growing.
Q 5: Did Meta generate positive free cash flow?
No. Free cash flow was negative $2.12 billion. Operating cash flow was $32.79 billion, but capital spending exceeded it.
Q 6: How much did ad prices and impressions change?
Ad impressions rose 10% and average ad prices rose 14%. Impression growth was a slight decline from recent quarters. Higher prices helped offset that slowdown.
Q 7: Has Threads passed X?
Meta claims that Threads has overtaken X in total monthly active users. Zuckerberg repeated the same in an interview last month. No independent verification has taken place here, but the figure is sourced directly from Meta.
Q 8: What is Muse, and what problems has it faced?
Muse is Meta’s AI agent for consumers. Users have reported data exposure problems, including a case where it shared a home address. Ars Technica also reported that security firm Claroc accessed user queries.
Q 9: How many people work at Meta now?
Headcount came to 66,775 as of September 30, 2026. It is 15% below a year ago, as Meta announced massive layoffs in May, with expenses coming due in the second quarter.
Q 10: What does this mean for advertisers?
As advertisers are paying more per impression, the value of measurement is rising. They need to assess the value of the cost per any given touchpoint, and how new AI tools are likely to affect it.
