For a brief moment, Meta seemed invincible.

After more than a year of struggling, shares surged more than 40% in just over a month, bringing the company's market value back to nearly $2T.

Almost $600B in market value was added.

A major legal settlement removed a significant overhang, while the launch of Muse finally gave investors a tangible AI product to point to after years of enormous spending.

Frankly, I was shocked by how aggressively the market reacted.

And then, as always, gravity returned. Meta has since given back most of those gains.

Mark Zuckerberg's comments on the latest earnings call reinforced what we already knew: Muse is promising, but far from proven.

Below, I'll walk through Meta's latest quarter and explain whether I’ll be buying Meta at these levels.

Disclaimer: This is not financial or investment advice. I'm sharing my personal investment decisions and reasoning for educational and informational purposes. Always do your own research before making any investment decisions.

Meta Platforms operates some of the world’s largest social media and messaging platforms, including Facebook, Instagram, WhatsApp, and Threads. The company generates nearly all its revenue through advertising, while investing heavily in artificial intelligence and augmented and virtual reality. The third quarter highlighted the continued strength of its core business and marked an important step forward in its AI ambitions with the launch of Muse, its personal AI agent.

Quarter at a Glance

What Mattered

1/ Advertising Growth Remains Robust

Meta's advertising revenue increased 26% to $63.1B in Q3. Growth was broad-based across regions, although ad impression growth moderated to 10%, down from 19% in Q1 and 14% in Q2. Meanwhile, average price per ad increased 14%, slightly faster than in either of the previous two quarters. CFO Susan Li attributed the stronger pricing to improvements in ad performance and more favorable macro conditions.

Engagement across Meta's platforms also remained strong. Family daily active people reached 3.64B, up 3% YoY, while average revenue per person increased 23% to $17.72. Instagram time spent per user reached an all-time high, growing double digits YoY, with strength across both Feed and Reels. Facebook Reels time spent also reached new highs in the U.S. and globally.

AI-driven improvements to Meta's recommendation and advertising systems continue to support these results. In Q3, upgrades to Instagram's Reels ranking increased time spent by more than 4%, while the expansion of Meta's GEM advertising model increased conversions by 1.7% for off-site conversion campaigns and 9.6% for app ads.

Looking ahead, management sees further opportunities to improve advertising performance through traditional machine learning, more advanced LLM-based recommendation systems, and generative AI tools for advertisers. Susan Li pointed to these ongoing improvements as a reason for confidence in continued strong core business growth throughout 2027.

2/ Muse Shows Early Traction

After more than a year of investment in Meta Superintelligence Labs, Meta launched Muse, its personal AI agent designed to carry out tasks on users' behalf. Within six weeks, more than 10M people in the U.S. and Canada had set up Muse, with approximately 25% using it on any given day. Zuckerberg said this initial engagement was more than twice that of Threads and, by Meta's estimates, other AI apps. He also noted that retention among early users appears to improve over time.

Shopping has emerged as Muse's most popular use case, with more than a quarter of weekly active users engaging in shopping activities and an average purchase size exceeding $200, including travel. Other popular uses include personal productivity and connecting Muse to services such as email and calendars. Meta also launched Muse Wonder, its first frontier AI model, which management says has further improved engagement and retention.

Meta envisions a network of personal and business agents capable of completing transactions and other tasks together. Potential revenue streams include commerce fees, paid subscriptions, model APIs, and enterprise offerings such as Muse Code. The company is also developing standards with partners including Walmart, Shopify, and Stripe to allow agents to interact securely while preserving businesses' control over customer relationships.

However, scaling Muse remains a challenge. Its compute-intensive nature has limited the rollout to the U.S. and Canada, and management expects total serving costs to rise as adoption expands. Meta is targeting more than a 10x improvement in compute efficiency over the next year while building capacity to serve more than 1B people over the next few years. Although Zuckerberg believes Muse has achieved product-market fit, the company has not disclosed its revenue, current per-user costs, or a timeline for profitability.

3/ Free Cash Flow Turns Negative

Meta's free cash flow turned negative in Q3, falling to ($2.1B) from $10.6B a year ago. Operating cash flow still increased 9% to $32.8B, but capital expenditures surged 80% to $34.9B, driven by investments in servers, data centers, and network infrastructure. Even excluding the $9.9B legal settlement charge, operating income grew 11% against revenue growth of 26%, reflecting rising infrastructure and AI-related costs.

Management does not expect this spending to slow anytime soon. Meta raised the lower end of its 2026 CapEx outlook to $135B–$145B and expects aggressive investment to continue in 2027, supporting both its existing business and emerging AI products. In the 10-Q filing for the quarter, Meta disclosed approximately $356B in future leases not yet commenced and $455B in non-cancelable contractual commitments, largely related to cloud capacity, data centers, and other infrastructure. These obligations extend over multiple years, with some lease terms lasting decades.

Meta is also shifting its investment priorities. Management expects Reality Labs losses to narrow from $18B–$19B in 2026 to approximately $15B in 2027, primarily by reallocating spending toward AI and slowing the pace of VR development. Zuckerberg reiterated his belief in VR's long-term potential, but emphasized that personal superintelligence is now the priority.

The scale of investment is also influencing Meta's capital structure. The company approved a new publicly traded, non-voting Class C share class, with existing shareholders expected to receive one new share for each share held, effectively creating a two-for-one stock split. The structure provides additional flexibility for capital raising, employee compensation, and acquisitions while preserving existing voting control.