Meta Platforms (META) released its Q3 2026 earnings yesterday, Oct. 21, after the market closed. The company beat on both the top line and bottom line and provided upbeat guidance that was ahead of Street estimates. In this article, we’ll analyze how to play the stock after the Q3 earnings beat.
Meta stock rose 27% last month and had its best month since November 2022 as markets gave a thumbs-up to its Muse artificial intelligence (AI) agents. The company’s Q3 earnings call was also mostly about Muse and other AI initiatives.
Key Takeaways from Meta’s Q3 Earnings
Here are my key takeaways from the report.
- Muse is off to a strong start, and over 10 million people in the U.S. and Canada have set up a personal assistant in just about one and a half months since its launch. Meta plans to keep Muse free for most users and earn from the transactions it helps generate. Those who need additional tokens, and businesses looking for additional Muse features, would need to pay subscription fees, though. Meanwhile, scaling Muse to “billions of people,” as CEO Mark Zuckerberg aspires, won’t be a cakewalk for Meta.
- Currently, Muse is very compute-intensive (read: cost-intensive) to run, but Meta expects to improve cost efficiency by 10x over the next year. The expected cost efficiencies coupled with scale and monetization would drive profitability.
- Threads now has more monthly active users than X. That, for me, was a key takeaway and a reflection on the network effect in Meta's family of apps. Unlike AI startups that need to acquire new customers, Meta is well positioned to bring AI tools to the over 3.6 billion people who use one of its apps daily.
- Meta said that Reality Labs losses have peaked and expects the segment’s operating loss to fall to $15 billion in 2027. While that’s still quite high for comfort, Meta expects losses to narrow from here and sees the business subsequently becoming profitable. It would be a tall ask, though, as the segment’s revenues are minuscule currently and it generated sales of a mere $443 million in Q3 while posting operating losses of $4.13 billion.
- Meta narrowed its 2026 capex guidance to between $135 billion and $145 billion. Incidentally, the company reported negative free cash flow of $2.1 billion in Q3 — its first quarterly cash burn as a public company. On a related note, Meta announced a new class of non-voting shares, and while the company said it does not have any financing plans as of now, I believe it is a precursor to a possible stock sale over the next year as Meta shores up its balance sheet to fund its burgeoning AI capex.
How to Play Meta Stock?
While Meta’s earnings were strong, legal woes continue to be an overhang. In August, Meta settled with almost every U.S. state over teen safety issues, agreeing to pay up to $18 billion and add stronger safety measures on its platforms. It was the largest settlement in U.S. history, excluding the tobacco settlements of the 1990s. The legal woes over youth-related issues aren’t over yet, and several such trials are scheduled to begin in the U.S. in the coming months. In yet another blow to Meta, a judge in New Mexico has ordered the social media giant to pay $25 billion for deceiving users about data privacy. As expected, Meta did not agree with the order and plans to appeal.
Data privacy and youth-related issues could gain even more traction as adoption of AI tools, which have data at their core, expands. Frequent legal troubles have been among the reasons Meta has usually traded at a discount to its Magnificent 7 peers.
That said, Meta’s core business is doing remarkably well. Moreover, the commentary on Reality Labs losses tapering down was quite reassuring, and the company has finally impressed with its execution in AI. The stock’s valuations are quite balanced here, which means they are neither attractive enough to trigger a buy nor have they stepped into exorbitant territory. I continue to hold Meta stock and would wait for a better price to add more shares.
On the date of publication, Mohit Oberoi had a position in: META . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.