Meta shares fall on weak guidance and shrinking free cash flow

• Meta forecast current quarter revenue of $61-64 billion (midpoint $62.5B), below analyst expectations of $63.15 billion, while daily active people came in at 3.6 billion, missing the 3.61 billion estimate
• Free cash flow collapsed 91% year-over-year to just $784 million as the company narrowed capital expenditure guidance to $130-145 billion (up from $125-145 billion prior range) to fund AI infrastructure including new data centers costing $50+ billion
• Total costs and expenses surged 55% to $42.03 billion, including $2.4 billion in legal charges and $1.18 billion in severance costs, while the Reality Labs VR unit posted $4.6 billion in operating losses despite $431 million in revenue

Meta Shares Fall on Weak Guidance and Shrinking Free Cash Flow

Stock Performance: Meta's shares plunged nearly 10% following disappointing Q2 results and weak forward guidance.

Key Financial Results:

• Revenue: $60.80 billion vs. $60.17 billion expected (beat)
• EPS: Beat estimates (specific figure not provided)
• Q3 revenue guidance: $61-64 billion (midpoint $62.5 billion) vs. $63.15 billion expected
• Free cash flow: Plummeted to $784 million from $8.55 billion year-over-year
• Net income: Declined to $15.85 billion from $18.34 billion
• Daily active people (DAP): 3.6 billion vs. 3.61 billion expected

Major Cost Drivers:

• Total costs surged 55% year-over-year to $42.03 billion
• Includes $2.4 billion in legal charges and $1.18 billion in severance costs
• CapEx guidance narrowed to $130-145 billion from $125-145 billion, maintaining the high end

AI Investment Strategy:

Meta is aggressively investing in AI infrastructure, including:

• $14.3 billion investment in Scale AI through hiring AI chief Wang (June 2025)
• New Llama model released, positioned as competitive with OpenAI and Anthropic at lower cost
• Major data center projects: $14 billion in El Paso, Texas (with BlackRock); $50+ billion Hyperion facility in Louisiana; $9 billion in Alberta, Canada

Business Developments:

• Reality Labs: $4.6 billion operating loss on $431 million revenue
• Exploring cloud computing opportunities by leasing excess capacity to third parties
• CEO Zuckerberg noted receiving "significant premium" offers for compute capacity

Market Implications: Investors remain concerned about Meta's massive AI spending without an established cloud business like competitors AWS, Azure, or Google Cloud, despite management's optimism about monetization potential.