META Stock is Crashing After Earnings - Here's What You Need to Know

As promised, this is going to be my Meta second quarter 2026 earnings analysis video. I have gone through the press release, the financials, the earnings presentation, and the conference call. And I have taken screenshots of everything that investors need to know. And before we dive into the video, I just quickly want to let you know that I try to do as many earnings analysis as I possibly can on my channel during earning season. So, if you want to see more earnings videos, then make sure to hit that subscribe button. But let's stop wasting time now because I try to get these videos out as quickly as possible after the earnings report. And let's dive right in to Meta's Q2 results. Now, at the time of recording this video, Meta stock is down roughly 11% in after hours trading. So, to put it lightly, the market did not respond well to this earnings report. And I also think that it was a pretty bad day to report earnings because the market as a whole has been selling off. You may not see it as much in the S&P 500, but the semiconductor and AI related stocks have been getting decimated. So, Meta reported somewhat messy results on the same day as the market is selling off a lot of the AI stocks. So, the sentiment heading into this report, just the overall sentiment in the market was pretty bad. And I think that's kind of adding to the downside from this report. As I said, it was messy, but it wasn't terrible. So let's dive in to the screenshots that I had to share with you now. All right. So starting from the top here, Mark Zuckerberg said, "AI is accelerating our core business today, powering our next generation of products and opening the door to entirely new enterprise opportunities." In the table below, we can see that revenue increased by 28%. So nearly another 30% revenue growth rate quarter. However, costs and expenses increased by a whopping 55% which led to income from operations declining by 8% and earnings per share declining by 13%. So, the story for this quarter is that the revenue growth was solid and very strong. I mean, 28% growth is incredible at this scale. However, the costs are growing significantly faster, which means that all of the profitability margins and metrics are down on a year-over-year basis. And this is not what the market wanted to see today. This next screenshot shows us all of the hits and misses based on analyst expectations. So revenue came in above analyst expectations. However, earnings per share missed by 13%. And I think that this is the largest reason why the stock is selling off in after hours. The revenue guidance for Q3 also came in on the lower end because analysts were expecting about $63 billion in revenue and the Q3 guide was for 61 to 64 billion. So the mid-range there is about 62.5 billion which is below the analyst estimate. Advertising revenue beat analyst estimates though. Family of apps revenue beat analyst estimates. Reality Labs losses also came in lower than analyst estimates which is always great to see. And then down at the very bottom we can see that operating income came in well below analyst estimates down 8% year-over-year. So again you can clearly see that the story for this quarter is that revenue and the top line is growing strong. The outlook was a little bit weaker than expected and margins are down more than analysts were expecting. Now, getting back over to Meta's press release here, we can see that daily active people are up 3% year-over-year to 3.6 billion daily active users, which is just insane. Ad impressions were up 14% and the price per ad was also up 12%. So, Meta is showing more ads and the cost per ad is also growing by double digits. These are great things to see. Then Meta explains that its costs are up due to a $2.4 billion legal charge and $1.18 billion from sever packages payments from them laying off so many people. This was an additional $3.6 billion [clears throat] of what should be one-time cost this quarter, which is what majorly impacted margins. Moving down to cash flow, though, we can see that cash flow from operating activities was about $ 31.86 billion and free cash flow was only $784 million. So Meta's free cash flows are declining and almost negative just like what Google reported in this quarter. So Capex is causing these businesses to produce almost negative free cash flow. Now and this is another thing that I think the market did not like. Meta also reported that it had 75,472 employees at the end of the second quarter which was a decline of 1% year-over-year. However, they then wrote that their headcount declined by 8,000 employees in May of 2026 and the majority will be reflected in the third quarter of 2026. So, Meta's headcount could drop below 70,000 in the third quarter, which I think is interesting because this would be an almost 10% decline to their headcount and their employee base at the same time as revenue is almost growing by 30% year-over-year. So it seems like Meta's underlying business is getting much more efficient and the revenue per employee is growing significantly. All right, moving on to guidance. Now we already discussed how revenue guidance is 61 to 64 billion. This is revenue growth of 19 to 25% next quarter, which does mean that Meta is expecting a slight revenue deceleration in the third quarter, which I do think is fair because this business cannot continue growing at 30% forever. And Meta has actually warned us that in the second half, revenue growth rates should decelerate. Meta then said, "We are raising the lower end of our expense outlook to incorporate the 2.4 billion of charges related to legal proceedings recognized in the second quarter. We now expect fullear expenses to be in the range of 165 to 169 billion. We continue to expect to deliver operating income this year that is above 2025 operating income. So Meta is expecting to grow its total operating income in 2026 despite them investing a lot of capital into capex and expenses this year. They're also expecting their 2026 capital expenditures to come in at 130 to 145 billion which has narrowed from their prior outlook of 125 to 145 billion. So they increased their low-end capex guide by about 5 billion. But they did not increase the top end of their capex guide like Google did. And I do think that this is a good thing to see right now. Then lastly, in regards to their outlook, the CFO says, "We continue to see scrutiny on youth related issues in several markets and have a number of youth related trials scheduled for this year in the US, which may result in a material loss." So Meta is saying that based on how these legal proceedings play out, they may have more legal expenses this year, and they are warning investors that it could result in a material loss. But obviously, no one knows the outcome of this quite yet. All right, moving on to the next screenshot. This one is their income statement. And here we can see that operating income was down year-over-year for the second quarter specifically. However, year-to-ate operating income is still up by about $4 billion. So, if Meta can continue to grow its operating income in the third quarter and fourth quarter, then they will end up meeting their target of increasing total operating income in 2026. And again, on a year-to-ate basis, they're actually still growing. Also, without the legal and severance fees, operating income would have been up by about $1 billion on a year-over-year basis, or about 5%. So, if these are truly one-time costs, which I hope they are, then Meta's business is actually growing its profitability this quarter. All right, let's now move on to the cash flow statement. And operating cash flow is up 24.6% for the second quarter on a year-over-year basis. Year-to- date operating cash flow is up 29% which is very strong growth to the business's cash generative potential. However, we can see that capex is up to $30 billion this quarter, which is up almost a double on a year-over-year basis. And this is what caused free cash flow to be so low this quarter. So, Meta is investing almost all of its operating cash flows back into Capex, which is what Google and the other hyperscalers are doing. Then lastly, we can see that Meta took on about $25 billion of long-term debt this quarter to supplement their capex. It doesn't necessarily look like they needed to take on debt this quarter, but it seems like they are securing more funding for future capex, but as of right now, their operating cash flows are actually still funding capex and the business is slightly free cash flow positive. Now, let's take a quick look at Meta's balance sheet because I have been seeing a lot of fears about the hyperscalers raising debt and I've seen people on social media and even Michael Bur saying that their balance sheets are getting overleveraged and I want to kind of share my opinion on that. So, right here we can see that Meta's total current assets are sitting at 125.5 billion. This is the company's liquid assets. Basically, things that it could turn into cash tomorrow or almost tomorrow if it wanted to. Then we can see that the current liabilities are sitting at 56.4 4 billion and these are the liabilities that are due within the next year. So we can see that Meta has a lot more liquid assets than current liabilities. So over the next year the company is not in any financial stress. Then we can see that long-term debt is now at 83.7 billion and total liabilities are at 189 billion. So Meta has about $63 billion more of total liabilities than current assets. This is not an issue in my opinion and I think that this balance sheet actually looks very liquid and strong especially when you consider that Meta has produced $130 billion in trailing 12 months operating cash flow now. So this business has a significant amount of liquid capital relative to its debt and it is producing a lot of cash again $130 billion from operations per year. However, a lot of people have been talking about the offbalance sheet debt, which we are going to get into a little bit later on in this video, and I will share more there. But first, let's continue on through Meta's earnings report and head into their earnings presentation. So, here we can see that advertising revenue came in at $59.4 billion for this quarter, which is actually above the fourth quarter of 2025. Now, if you take a look at the fourth quarter of 2024 versus the second quarter of 2025, you can see that revenue was basically flat. But this year we can see that the second quarter revenue is above the fourth quarter revenue from last year which suggests that Meta's advertising business is seeing a lot of tailwinds. And I also believe that this suggests Meta should have a very strong remainder of the year. To put it simply, their advertising business is firing on all cylinders and showing significant growth. I also calculated the growth rates from the different regions of the world. So the US and Canada is up 31.3%, Europe is up 24%, Asia is up 18% and the rest of the world is up 34.8%. So the US and Canada and the rest of the world regions are still growing by over 30% per year, which I also think is strong because the US and Canada is Meta's largest market and it is still growing again by over 30%. Now this next slide shows us Meta's expenses as a percentage of the revenue and we can see that general and administrative expenses came in higher than usual at 9% and R&D came in at 36% of revenue. So you can clearly see that the costs this quarter were well above the costs in previous quarters over the past 2 years which does make me believe that a lot of these expenses are one-time expenses and going forward the expenses as a percentage of revenue should come back down which should also lead to earnings and operating income continuing to grow in future quarters. All right, moving on. This next slide shows us that ad impressions delivered worldwide were up 14% year-over-year versus 11% in the second quarter of 2025. So the number of ad impressions that Meta is showing is accelerating on a year-over-year basis and growing quite strong. This next slide is the average price per ad and worldwide it is up 12% year-over-year versus 9% in the second quarter of 2025. So the average price per ad over at Meta is also accelerating on a year-over-year basis. In the US and Canada, the average price per ad is up 20%, Europe is 10%, Asia is up only 1%, and the rest of the world is up 21%. So, Meta is seeing its average ad prices increase by double digits in nearly every market, which I think is very strong. All right, now let's discuss the offbalance sheet debt. So, this person on X, Trevor Scott, says it's the offbalance sheet debt that is concerning him with Meta. And a lot of other investors including Michael Bur are saying that they are concerned about the offbalance sheet debt for all of the hyperscalers, not just Meta. So what I did is I went and took a look at Meta's most recent 10Q and they actually highlight all of their offbalance sheet liabilities. So I think the best thing to do, even though it's going to be boring, is to just read you exactly what this says. So starting from the top, this says in addition to the lease liabilities that are included on our balance sheet, we have operating and finance leases that have not yet commenced as of March 31st, 2026. These lease obligations were approximately 183 billion, consisting of data centers, collocations, and certain network infrastructure, which will commence during the remainder of 2026 and 2036 with lease terms ranging from greater than 1 year to 30 years. As of March 31st, 2026, we had $238 billion of non-cancellable contractual commitments comprising both short-term and long-term arrangements. These commitments are mostly related to thirdparty cloud capacity arrangements and continued investments in servers and network infrastructure, data centers, and consumer hardware products, with approximately 42.3 billion and 47.7 billion due in 2026 and 2027, respectively. In addition, as of March 31st, 2026, we have contingent obligations to purchase up to 14.7 billion of cloud capacity over a 5-year period. Non-cancellable contractual commitments increased by approximately 24 billion this quarter. So, to summarize what I just read, Meta has about $183 billion of lease obligations that will commence over the next decade and could last up to 30 years. They have 238 billion of non-cancellable contractual commitments, mostly related to third-party cloud capacity. 42 billion of which is due this year and 48 billion due next year. The total is $237 billion probably over the next 5 years, which works out to roughly 45 to50 billion per year. They also have an obligation of 14.7 billion of cloud capacity over the next 5 years, which works out to 3 billion per year. And then lastly, they have infrastructure agreements that are non-cancellable and those increased by 24 billion. So then my natural next question was why are these commitments not included in Meta's balance sheet as liabilities? And this screenshot shows us that because under the GAP accounting rules, a liability requires a present obligation from a past event. And since these are contracts to buy something in the future, it legally cannot go on the balance sheet under current GAP rules. So it's not that Meta is trying to hide these or keep them off of the balance sheet. It's because quite literally recognizing them would be wrong under the current GAP rules. This next screenshot shows us that the $183 billion commitment number is not included on the balance sheet is because these are for leased assets that don't even exist yet. These assets will come online over the next decade and as they do and as Medad starts to lease them then they will go on the balance sheet as liabilities. This 183 billion number also sounds scary but these are for very long-term leases that come online over the next decade. So to summarize all of this, in total we have $47 billion of non-cancellable commitments per year out to 2031, $3 billion per year in cloud capacity purchase agreements, $183 billion of leasing commitments coming online over the next decade, which conservatively works out to about $18 billion per year. So the total here is about $68 billion per year in commitments. And I think that this is on the higher end. Now, let's go take a quick look at Stock Unlock. And before this quarter, we can see that Meadow was producing $124 billion in annual operating cash flow. And after this quarter, the number is now at $130 billion in the trailing 12 months. Now, if we also take a look at what analysts are expecting Meta to produce in operating cash flow in the future, we can see that in 2027, operating cash flow is expected to hit 170 billion. Then by 2030, it is projected to hit 308 billion. So Meta's operations are projected to grow the cash flow significantly out to 2030. So in my opinion, Meta has the cash flows to handle all of these payments and obligations. The real risk is if these obligations do not produce a positive ROI or if the demand does not materialize. But as of right now, due to Meta's revenues accelerating and its operating cash flow is growing tremendously, it looks like these expenses are paying off and producing a positive ROI for the business. So now let's quickly talk about Meta's valuation. And in after hours trading, the business is now valued at $1.344 trillion. In the trailing 12 months, they've also produced 130.3 billion in operating cash flow, which means the business is now trading for about 10.3 times operating cash flow, trailing 12 months operating cash flow in after hours trading. Analysts are also expecting Meta to produce about $33 in EPS this year, which means that Meta is now trading for about 16 times 2026 earnings per share. A 16 price to earnings ratio for one of the highest quality businesses in the world that is still growing its revenues by about 25% per year. Just on that basis alone, I think that Meta is looking pretty dang cheap. Now, I also updated my DCF on Meta to include the most recent trailing 12 months operating cash flow figures. So, over the next 3 years, if Meta can continue to grow its operating cash flows by at least 15% per year, entry for 14 times operating cash flow, which is below their long-term median of 17.3, which you can see right here, then the stock's fair value is about $128 per share, and it could hit almost $1,100 in a share price by 2039. It could also produce a compounded annual growth rate of about 23% and this is relative to the close price of 585 bucks. So the keer would be even higher now probably around 25 to 26%. And I personally do not think that these are unrealistic metrics right here. I mean Meta is currently growing its operating cash flows well above 20% and a 14 price to operating cash flow is well below Meta's long-term median. We can actually zoom in here and we can see where my 14 price to operating cash flow line is. So Meta is currently trading for about 10.3 times operating cash flow as we saw. But even just over the past few years, the median has been about 15. So I am projecting that the price to operating cash flow will reexpand back up to 14. But I believe that this will happen if Meta's underlying business does continue to grow and the sentiment towards the stock changes as the business again continues to grow. And on that thesis, the stock looks extremely cheap today in my opinion, especially in after hours trading. So now let's move on to the conference call highlights and the notes that I took. So this first bullet point says, "Our investments in AI are improving every part of our core business. This is what Mark Zuckerberg said and he pointed to the fact that Meta's advertising business is growing faster than every other advertising business in the market right now, especially at their scale." Mark also said that Meta is developing agents that will be used by businesses and consumers in the future. Meta is also building and shipping more apps more quickly by leveraging AI and also leveraging their 3.6 billion daily active people. And in my opinion, Meta can build and scale apps faster than any other company on the planet simply because they have such a wide distribution. Once they build an app, they can get it in front of 3 billion plus people per day to attract them to it, for them to download it, and then ultimately to monetize that app over time. Mark then said that the subscriptions and APIs are new revenue lines that will start to show up in the near future. However, Meta is planning to maximize 2026 and 2027 compute capacity, which does make it sound like they are going to increase their capex guide for 2027, although they have not done so yet. Mark also said that it is hard to predict usage scaling curves longterm. And when he said this, the mark did continue to sell off in after hours because it's basically Mark saying that he doesn't know what the compute usage looks like over the longer term. So all of this spending today is a little bit questionable again longer term. However, he then followed that up to say that they do plan to continue building compute capacity in 2028 and over the longer term. So, they're not going to be done in 2027, but they could moderate their spending in 2028. It does kind of sound like Mark then said that industry compute capacity will remain tight for the foreseeable future, and they do not see supply catching up to demand anytime soon. Business agents and customers are coming out soon, he hinted. So, we could see business agents start to produce revenue and add to the revenue in the near future here as well. Then an analyst asked a great question which is why Meta is planning to sell compute and it's also buying compute at the same time. Mark then said that there's simply not enough compute out there and it's ultimately a balance between using their own compute to develop the business long-term versus selling their existing compute for a very high profit. That is ultimately what Mark Zuckerberg is trying to do. He's trying to invest in the long-term growth of the business with their own internal compute, but they're also getting extremely attractive offers for renting out their existing compute that could juice up and boost the company's ROI in the short term and also boost the cash flow in the short term as well. So, it's a little bit of a dial that he is pulling and that's why he is doing it. And then he wrapped up by saying we use capital to build compute with the confidence that we can monetize it almost immediately if they want to. And this is simply because again the world is so compute constrained. So having more compute is actually an asset whether or not Meta uses it internally or even if they overbuild compute because compute again is so valuable right now that it's actually an asset that they could rent out and produce cash flows from and that is why again he has so much confidence in continuing to build out so much compute. So to summarize everything that we have talked about in this video and my thoughts on the Q2 earnings, revenue growth was strong. However, revenue growth is expected to decelerate next quarter and into the end of the year. Margins are also being compressed largely due to what should be one-time expenses, but the market did not like this at all. Headcount should also drop next quarter while revenues continue to grow strong, which does suggest that Meta is gaining efficiencies from AI and the revenue per employee is growing tremendously. The capex guide was also not increased on the top end, but it was increased on the lower end and I actually do think that this was a bullish point from the earnings call. The forward PE of the stock is now around 16 and the price to operating cash flow is about 10.5. I think that the stock looks cheap if they can continue to grow and the business continues to prove that its capex ROI is positive. So ultimately, I do think that Meta stock is looking very undervalued here and could produce some pretty strong returns even with some pretty conservative estimates. But with all that being said, that's going to wrap up my meta earnings analysis. And if you enjoyed this video, then please remember to leave a like on it. And if you want to see more of my earnings analysis videos, like my Microsoft and Amazon ones that will be coming out this week, then again, please make sure to subscribe to my channel. As always, thank you so much for tuning in. I truly do appreciate it. Let me know what you think of Meta's earnings down in the comment section below.