Meta: Advertising and Muse monetization advance as capital spending and financing pressures grow

Revenue beat expectations, but how should investors view profits?

Meta’s third-quarter revenue was $64.6 billion, up 26% year over year and 1% above JPMorgan’s estimate. Fourth-quarter revenue guidance was $73 billion–$76 billion, with the upper end $1 billion above the bank’s previous estimate.
Revenue growth coincided with pressure on profits: third-quarter GAAP operating income was $13 billion, down 37% year over year but 25% above the bank’s estimate. Excluding litigation-related legal expenses, operating income was approximately $23 billion, with a margin of 35.4%; one-time expenses significantly reduced reported profit.

Third-quarter advertising revenue rose 26% year over year, with impressions up 10% and prices up 14%. JPMorgan attributes the growth to AI-driven improvements in engagement and monetization: recommendations increase time spent, while improved ad ranking raises returns on ad spending.
Advertisers that adopted recommendations from Meta’s AI business assistant recorded approximately 5% more conversions at the same cost per conversion and spent 9% more than those that did not. This provides concrete evidence of how improved advertising performance connects to customer budgets.
Tool adoption is also expanding: more than 10 million small businesses used at least one AI creative tool in the third quarter, compared with more than 9 million in the second quarter; advertiser adoption of video generation features rose 25% quarter over quarter.

More than 10 million people in the US and Canada have registered for the Muse agent, of whom 25% use it daily. Shopping is the most common use, accounting for 25% of users, with an average purchase exceeding $200. Transaction use cases support a plan to charge a commission on facilitated transactions; heavy users could also pay a subscription fee.
Expansion is constrained first and foremost by computing capacity, so Muse has not yet launched globally. Meta plans to improve cost efficiency by more than 10 times over the next year through the use of idle computing capacity, more efficient models and inference optimization, while introducing charges earlier than it has for previous new products.
For enterprises, Meta plans to generate subscription and usage-based revenue through its model API and Muse Code. The connection JPMorgan values is that Meta’s existing base of more than 500 million business users can provide distribution channels and a foundation of customer relationships for the new services.

JPMorgan raised its 2027 revenue forecast by 2.5% to $315.5 billion, implying year-over-year growth of 22.6%. It also raised its total expense forecast for the same period by 3.4% to $217.3 billion, while GAAP earnings per share edged down from $31.08 to $31.04. Most of the revenue increase is absorbed by higher expenses.
The bank also raised its 2027 capital expenditure forecast by 5.1% to $255.1 billion and expects free cash flow that year to be negative $76.6 billion, a further deterioration from its prior forecast of negative $72.8 billion. The company is still preparing its 2027 budget and has yet to provide expense or capital expenditure guidance for that year.

The 14C filing addresses the need to raise hundreds of billions of dollars over the coming years. In January 2027, Meta will create non-voting Class C shares through a one-time stock dividend with an effect similar to a two-for-one split, preserving Zuckerberg’s voting control. On that basis, JPMorgan sees an increased likelihood of equity financing from the fourth quarter of 2026 to the first quarter of 2027.
JPMorgan maintained its Overweight rating and raised its year-end 2027 price target from $920 to $940, based on 2028 GAAP earnings per share of $35.73 and a price-to-earnings multiple of approximately 26 times. The valuation premium rests on advertising growth, cost efficiency and AI monetization paths; heavy investment accompanied by delayed monetization would depress both profits and free cash flow.