Meta Platforms Inc.’s shares fell more than 8% in after-hours trading today after the social networking company beat revenue expectations for its fiscal 2026 second quarter but missed badly on earnings as costs rose 55%.

For the quarter that ended on June 30, Meta reported diluted earnings per share of $6.18, down from $7.14 in the same quarter last year, on revenue of $60.80 billion, up 28%. Analysts had expected earnings of $7.22 per share on revenue of $60.24 billion, leaving the top line a modest beat and the bottom line a miss of about 14%.

Net income came in at $15.85 billion, down 14%. Income from operations was $18.78 billion, an 8% decline. Operating margin narrowed to 31% from 43% a year ago.

The cost line did the damage. Total costs and expenses rose 55%, to $42.03 billion. Research and development spending climbed 67%, to $21.66 billion, while general and administrative expenses more than doubled, to $5.61 billion, on $2.40 billion of charges tied to legal proceedings. Severance from the May headcount reduction added another $1.18 billion. That round cut about 8,000 jobs.

Meta ended the quarter with 75,472 employees, 1% fewer than a year ago. Most of the workers cut in May are still counted in that figure. They will be out of it by the end of the third quarter, the company said.

Capital spending consumed almost all of the cash the business generated. Operating cash flow came to $31.86 billion. Capital expenditures, including principal payments on finance leases, ran to $31.08 billion. That left free cash flow of $784 million. A year ago the figure was $8.55 billion.

Meta bought back no stock at all in the quarter. A year earlier it spent $10.17 billion on repurchases. Dividend payments came to $1.35 billion.

Meta also went to the debt markets, raising $24.91 billion during the quarter. Long-term debt now stands at $83.66 billion, up from $58.74 billion at the end of 2025. Cash, cash equivalents and marketable securities totaled $90.26 billion.

Family of Apps, covering Facebook, Instagram, Messenger and WhatsApp, brought in $60.37 billion, up 28%. Advertising accounted for $59.36 billion of that, up 27%. Segment operating income fell 6%, to $23.39 billion.

Reality Labs, which houses virtual and augmented reality hardware and software, had revenue of $431 million. That was up 16%, helped by demand for AI glasses. The unit lost $4.62 billion at the operating level, a little worse than the $4.53 billion it lost a year ago.

Engagement recovered from last quarter’s dip. Daily active people averaged 3.60 billion in June. That is up 3% from a year ago and up from 3.56 billion in March. Ad impressions across the Family of Apps rose 14%. The average price per ad rose 12%.

“AI is accelerating our core business today, powering our next generation of products, and opening the door to entirely new enterprise opportunities,” founder and Chief Executive Mark Zuckerberg said in the earnings release. “The results are already showing, and I’m optimistic about the potential ahead.”

On the earnings call, Zuckerberg said more than 1 million businesses now use Meta’s business agents each week on WhatsApp and Messenger. Chief Financial Officer Susan Li put much of the expense growth down to pay for technical hires, particularly in artificial intelligence. She also pointed to infrastructure and cloud costs.

The outlook offered little relief. Third-quarter revenue is forecast at $61 billion to $64 billion. Analysts had modeled roughly $63 billion, so the midpoint sits below what analysts had expected.

Full-year expenses are now pegged at $165 billion to $169 billion, with the low end of the range up by $3 billion. Capital expenditures for 2026 were narrowed to $130 billion to $145 billion, from $125 billion to $145 billion. Meta also expects a tax rate of 15% to 17% for the rest of the year, against 13% to 16% previously.

Youth-safety litigation got another mention. Trials are scheduled in the U.S. this year and Meta said they “may ultimately result in a material loss.”

The setup is familiar from Meta’s first quarter, when a capital expenditure increase overshadowed a large earnings beat. This time there was no beat to overshadow. Revenue is still growing at 28%, but the spending needed to support it has absorbed nearly all of the cash it produces, and the legal bill is now arriving on top.

Photo: Meta