Meta reported a stronger-than-expected top line for the second quarter of 2026, but weaker earnings, margins, cash flow and forward guidance kept pressure on the stock, according to MSX Research’s latest daily note on U.S. equities and RWA markets.
Revenue beat expectations as the core ads business held up
MSX Research said Meta posted revenue of $60.801 billion for the quarter, up 28% from a year earlier and above market expectations of about $60.2 billion.
Within that total, Family of Apps generated $60.370 billion in revenue. The note said the company’s core advertising business remained solid and did not show clear signs of weakening in the quarter.
Earnings, margins and free cash flow deteriorated
Despite the revenue beat, Meta’s EPS came in at $6.18, down 13% year over year and well below expectations of roughly $7.15 to $7.17.
MSX Research attributed the earnings miss mainly to higher costs. The company recorded $2.4 billion in legal litigation expenses during the quarter, while total costs jumped 55% from a year earlier. Operating margin fell to 30.9% from 43% in the same period last year.
Free cash flow dropped sharply to $784 million from $8.55 billion a year earlier. Reality Labs posted revenue of $431 million and an operating loss of $4.619 billion.
Q3 guidance also came in light
For the next quarter, Meta guided to Q3 revenue with a midpoint of $62.5 billion, below consensus expectations of about $63.1 billion. Its full-year capital expenditure guidance stayed at a high range of $130 billion to $145 billion.
MSX Research said the market was dealing with three negative factors at once: the legal charge, AI infrastructure spending that pushed costs higher, and Q3 guidance that came in slightly below expectations.
MSX Research view
The note said the contrast in Meta’s report was even sharper than Microsoft’s. Revenue and Family of Apps both beat expectations, which in MSX’s view showed that the ad business itself was not the problem. The drag came from the cost side.
MSX said the one-off $2.4 billion legal litigation expense, together with AI infrastructure investment, pushed total costs up 55% year over year, cutting operating margin from 43% to 30.9% and leaving free cash flow close to being wiped out. With the Q3 revenue midpoint also slightly below market expectations, the stock’s sharp decline was not surprising in its view.
Looking ahead, MSX said the main issue to watch is not ad demand, but whether the scale and pace of AI spending can moderate. If that does not happen, operating leverage will remain under pressure. If spending does ease, the latest selloff could later be reassessed.
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Risk notice
MSX said macroeconomic conditions and the U.S. stock market can be highly volatile, and the material was provided for research and observation purposes only and does not constitute investment advice.