MSX US Stock Daily Watch: Advertising Engine Strong! Meta Revenue Grows 26%, AI Investment Continues to Increase

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Today's Observation:

In FY2026 Q3, Meta's revenue reached $64.601 billion, up 26% year-over-year, beating market expectations of approximately $63.34 billion. Advertising revenue grew 26% year-over-year to $63.061 billion, still contributing nearly 98% of the company's revenue. Ad impressions increased 10% while average ad prices rose 14%, indicating that Meta's growth this quarter came from both improved user engagement and better ad monetization efficiency.

Meta is forming two AI commercialization paths at different stages. The first is advertising AI, which has already generated returns. Recommendation algorithms, ad ranking, generative ad creatives, and automated placement tools are improving content engagement and ad conversion efficiency, driving both ad impressions and unit prices higher simultaneously. Meta explicitly stated that AI investments have already delivered significant incremental revenue to the advertising business through higher user engagement, better content recommendations, and more efficient monetization.

The second is Muse, a personal AI product still in the investment phase. About six weeks after launching in the US and Canada, Muse has surpassed 10 million accounts created, with approximately 25% of users using it on any given day. This retention level indicates that Muse has already formed initial usage habits across scenarios such as shopping, schedule management, productivity, and content creation.

Data in a Minute:

• FY2026 Q3 revenue of $64.601 billion, up 26% year-over-year, beating market expectations of approximately $63.34 billion;

• Advertising revenue of $63.061 billion, up 26% year-over-year, accounting for approximately 97.6% of total revenue;

• Ad impressions up 10% year-over-year, average ad prices up 14% year-over-year;

• Family of Apps daily active people at 3.64 billion, up 3% year-over-year;

• GAAP operating income of $12.988 billion, down 37% year-over-year, with operating margin declining from 40% to 20%;

• $9.89 billion in legal expenses recorded this quarter; excluding this expense, operating income would reach $22.878 billion;

• GAAP net income of $9.860 billion, up 264% year-over-year;

• GAAP diluted EPS of $3.83; excluding only the impact of legal expenses, the company estimates EPS at $7.40;

• Family of Apps revenue of $64.158 billion, operating income of $17.117 billion;

• Reality Labs revenue of $443 million, down approximately 6% year-over-year; operating loss of $4.129 billion, compared to a loss of $4.432 billion in the prior year period;

• Muse has over 10 million accounts in the US and Canada, with approximately 25% of registered users using it on any given day;

• Management expects to improve Muse cost efficiency by more than tenfold over the next year;

• Q3 operating cash flow of $32.786 billion;

• Capital expenditures and finance lease principal payments totaling $34.906 billion;

• Free cash flow of negative $2.120 billion, compared to positive $10.625 billion in the prior year period;

• Free cash flow for the first nine months remains positive at $11.049 billion;

• Cash, cash equivalents, and marketable securities totaling $82.45 billion at quarter end;

• FY2026 capital expenditure guidance narrowed to $135 billion to $145 billion, previously $130 billion to $145 billion;

• Q4 revenue guidance of $73 billion to $76 billion, with a midpoint of $74.5 billion, above market expectations of approximately $73.65 billion;

• Meta expects Reality Labs full-year operating loss of $18 billion to $19 billion, potentially narrowing to approximately $15 billion in 2027;

• Following the earnings release, Meta's stock rose approximately 2.9% in after-hours trading.

MSX View:

Currently, Meta's advertising foundation remains very strong. Ad impressions grew 10% and average ad prices rose 14%, together driving 26% advertising revenue growth. Impression growth demonstrates that platforms like Facebook, Instagram, and WhatsApp can still expand content consumption and commercial display space; rising ad prices indicate that advertisers are willing to pay higher prices for the conversion results Meta provides.

AI's value in this system is not charging users directly, but improving the efficiency of every content recommendation and ad impression. Recommendation models can increase user dwell time, ad models can more accurately match consumers, and generative tools reduce the cost for advertisers to produce image and video creatives. As long as these tools can improve advertising ROI, Meta can continue to grow revenue without significantly increasing ad density.

Muse represents Meta's longer-term and more uncertain second growth curve. Gaining over 10 million accounts in about six weeks, with approximately one-quarter of registered users using it on any given day, demonstrates that Meta already has the ability to rapidly distribute new AI products to large-scale consumers. This distribution capability comes from the global social network formed by Facebook, Instagram, WhatsApp, and Messenger—an advantage that independent AI startups find difficult to replicate.

Capital expenditure is another important change this quarter. Meta's single-quarter capital expenditures and finance lease principal payments reached $34.906 billion, already exceeding operating cash flow of $32.786 billion, pushing quarterly free cash flow down to negative $2.120 billion. Negative quarterly free cash flow does not mean Meta has lost its internal financing capability: the company's free cash flow for the first nine months remains positive at $11.049 billion, and it still held $82.45 billion in cash and marketable securities at quarter end. But it indicates that AI infrastructure buildout is significantly increasing capital requirements.

If AI continues to drive advertising revenue growth while Muse's inference costs decline rapidly, Meta could use the cash flow from its mature advertising business to incubate a new personal AI entry point. Conversely, if capital expenditures and depreciation continue to rise while Muse struggles to establish a revenue model, the company's free cash flow and profit margins will face prolonged pressure.

Therefore, this earnings report proves that Meta has already obtained AI returns in its advertising business, and also demonstrates the company's ability to rapidly roll out consumer AI products. What needs to be proven in the next stage is whether Muse can transition from user scale to commercial scale, and how much incremental advertising revenue, operating profit, and free cash flow each additional dollar of AI capital investment can ultimately generate.

The advertising business has already provided the funding base for AI investment. Meta's next core task is to further transform AI from a tool that improves existing business efficiency into a new platform capable of independently generating revenue.

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