META STOCK IS CRASHING! (Meta Stock Earnings Analysis!)

Meta stock is crashing. It's crashing after releasing its latest quarter's earnings. The stock was trading at $585 at the close and we can see in the post market the stock is now down to $547, down 6.5% after hours. Now, what's interesting about this, yes, in the last year they're already down 15.5% before the after hours selloff, but the stock is currently seeing one of its biggest losing streaks in the company's history. The stock has fallen for nine consecutive trading sessions. And considering the fact they're down heavily in after hours right now, it's obviously likely that they'll be down at market open tomorrow, meaning we could be looking at 10 consecutive days of losses in a row for Meta Stock. So, in this video, we need to dive into the recent earnings report and ultimately decide if Meta is an interesting opportunity at today's prices. And real quick, if you're not already subscribed to the Dividendology newsletter, I highly suggest you check it out at the link in the description. It's where I put out my best research. You'll only get a couple of emails every single week about the best opportunities in the dividend growth and high yield space. So, be sure to check that out at the link in the description or just simply scan the QR code that I'm putting on the screen right now. So when we look at Meta stock before the selloff in the post market today, they were already down 15.5% in the last year and year to date down by 10.3%. So certainly way underperforming the S&P 500, which is up somewhere 8 to 9% so far just in 2026 alone. So what went on in the recent earnings report? Well, let's take a closer look. To start, we can see Q2 GAP earnings per share was a miss. They reported $6.18 which was a big miss by $14 and we'll touch on why that was the case in just a moment. However, we can see revenue growth continues to just explode for Meta for a company as large as they are already. Keep in mind this is already a $1.5 trillion stock. The market cap is large. They're growing revenue at nearly 28% year-over-year. That's absolutely incredible. And it's even more impressive when you look at what the growth of that revenue has actually looked like over the past few years. If we jump to our profitability sheet and look at Meta, here's what you can see. Come over here and look at revenue versus cost of revenue. They've gone from around, let's see, 17.9 billion in revenue in 2015 up to 200 billion in 2025. So more than a 10x in a decade time period. So just astronomical revenue growth. The 10-year revenue cagger is 27.34%. And remember what it was in this recent earnings report, up 27.9% year-over-year. So, as mind-blowing as it sounds, their revenue growth is even faster than their 10-year revenue, Kaggar, which was already ridiculous. So, how are they growing top lines at such a substantial rate? Well, ultimately, it makes sense if you understand the Meta business model. And to do that, it's quite simple. Jump over to their recent earnings report. On the very first page is really probably the three most important metrics to understand because ultimately at the end of the day Meta is an advertising business. We have family daily active people, how many people are using their apps. We have ad impressions and then we have the average price per ad. If all three of these are growing, typically you're going to see really nice revenue growth. Now daily average people was sitting at 3.6 billion on average for June 2026, an increase of 3% year-over-year. So, not rapid growth, but they already have almost half of the world on all of their platforms, and they're still growing. On top of this, ad impressions. Here's where they're seeing a lot of growth. They've shown 14% more ads year-over-year. So, more people on the platform while simultaneously seeing significantly more ads. And when you combine that with the fact that the average price per ad was up by 12% year-over-year, all of a sudden, it's not hard to do the math to see why revenue is growing at such an exceptional rate. So from a topline perspective, organic growth perspective, things still look very good for Meta. The one thing we do need to make note of is where the fault is in this advertising business. One of the things that inevitably happens whenever we have a market slowdown, an economic slowdown or even a recession is advertisers pull back their budgets. Marketing budgets get cut. So for example 2021 to 2022 slower economic period we can see revenue per share was quite low and in fact earnings per share dropped by quite a bit for metastto. So if you are going to be a shareholder in this company keep that in mind that's one of the potential weaknesses but overall it's certainly a capital light beautiful business model. I mean the profit margins on this stock are just absurd with last year's coming in at 82%. So we touched on the good. Now we need to start diving into the concern. Why did they see such a large miss on their earnings when revenue was up nearly 28% year-over-year? But the reality is this is not due to any issues with the core business. Meta recorded 2.4 billion in legal related charges and 1.18 billion in severance expenses, which is crazy to think about following its workforce reduction in the previous quarter. So those two expenses combined for about 3.58 billion, which comes out to roughly $1.40 40 cents per diluted share before considering taxes and other effects. So without those two expenses, they would have seen a beat on their estimated earnings. Actually a pretty decent beat. So the reality is what we're seeing with revenue and earnings. The core business is actually doing extremely well right now. And ultimately, like I said, it's going to boil down to those three key metrics. If their daily active people, ad impressions, and average price per ad continue to grow, then they're going to be in solid shape. However, there's more to this story than just the headline earnings per share miss. In fact, there's something we haven't even brought up yet, which is obviously imperative for Meta Stock, and that's capex. Capex spending and free cash flow. Now, it's important to remember that at the end of the day, free cash flow, growing free cash flow is ultimately what pushes stock prices higher. And the math behind free cash flow is simple. It's just operating cash flows, which is the core cash flows that the actual business generates, minus capital expenditures, which is the cash a company spends to buy, build, upgrade, or maintain their long-term assets. And once you back that out, you have free cash flow. With free cash flow, a company can reinvest back into the business, do mergers and acquisitions, pay down debt, buy back shares, pay out dividends. Ultimately, it's the capital they use to reward shareholders. So, if that number is growing, then the intrinsic value in the share price over the long term for the stock is growing. However, what we've seen is for the first time in really a long time for Meta from 2024 to 2025, free cash flow declined. And it wasn't due to any issues with the core business. Operating cash flows are still growing, but capex spending is surging to unprecedented levels. And here's what's really interesting. Free cash flow in 2025 came in at 46 billion. What we can see now is that in 2026, free cash flow is expected to go negative with capex spending projected at about 135 billion. The next year, free cash flow expected to be negative again with capex spending around 175 billion. And it won't be until 2028 they're expected to get back to free cash flow positive and not till 2029 where free cash flow surpasses their previous 2025 and 2024 levels. And so what did they state in the recent earnings report about capex spending? Well, if we look at the CFO's comments, he said, "We anticipate 2026 capex expenditures, including principal payments on finance leases, to be in the range of 130 to 145 billion, narrowed from our prior outlook of 125 to 145 billion." So, really, they raised the low end of the guidance. So, arguably, the guidance toward capex spending got slightly shifted higher. And in the same way that Google stock sold off the other day when their capex guidance slightly increased, the exact same thing is happening to Meta Stock. Now $542 in the post market. Now here's what's interesting. If we go back and look at the free cash flow breakdown, you can see from 2021 to 2022, free cash flow got reduced significantly because capex spending increased substantially. And this is when Meta was pushing the metaverse really hard. And that project did not pan out as well. They burned billions and billions in capital. It's now estimated about $80 billion worth of capital that had no internal rate of return. And so naturally, as a result, what did Meta do? Well, anytime a stock is burning cash and they're not achieving returns above their cost of capital, naturally, they should start paying out dividend. And that's exactly what Meta elected to do. Now, obviously, the yield is very low right now. It's just 0.36%, but they're using around 10, 11, 12% of their free cash flow now to pay out a dividend. Now, here's what's really interesting to me about that. We're talking about a stock now that is going into negative free cash flow territory. Capex has ramped up so much that free cash flow is going to go negative and at the exact same time they're even dipping into the bond market to continue to raise capital. So what's going on? Free cash flow is going negative. Their balance sheet is weakening because they're issuing bonds. So from a capital allocation perspective, all of a sudden they're in an interesting position. I'm starting to wonder if they regret initiating the dividend back in 2024. Now, the other item that we do need to make note of is if we jump over to our quarterly data sheet, we're already looking at meta revenue per share. But take a look at operating margins. The data will load in. And real quick, like always, if you'd like to download any of the spreadsheets you've seen in this video and get access to the ticker data add-on in Google Sheets that allows you to automatically import stock financials into your spreadsheet, then you can head over to tickerdata.com at the link in the description. Now, what you'll notice with Meta is over the last few quarters, operating profit margins have been in the range of around 40 41%, sometimes a little bit higher in some instances. But we saw this number significantly lower in the recent quarterly earnings. But again, when you see the charts showing a drop in operating profit margins, you need to remember a lot of that is due to the one-time expenses that we discussed earlier. So, don't let that mislead you. Now, with all that being said, we need to talk about valuation at current levels. now at $534 in after hours, down by nearly 9%. And trading at these prices puts Meta at a forward PE that is substantially below its historic market averages. It's trading at about a 18 PE multiple right now, which is lower than that of the S&P 500. So, what exactly do forward-looking returns potentially look like at current prices? Well, if we jump over to our sensitivity analysis model, the data will load in thanks to ticker data and we can see the projected EPS kagger for meta from 2026 to 2030 is now sitting at about 14.46%. So, let's assume that they do exactly that 14.46% EPS growth annually. Now, we have to rationalize what is a fair PE multiple for Meta. The trail and 12-month PE multiple is currently sitting at about 20.94. Keep in mind on a forward-looking basis right now it's significantly lower around a 18 even into the 17 range after hours. So let's not be overly optimistic with what forward looking PE multiples could look like. Let's say that they sit at about a 19 PE multiple lower than the historic average by quite a bit and even lower than what we're seeing over the trailing 12 months. You can still see forward-looking returns are doubledigit compounded returns. And keep in mind that doesn't even include the small dividend that they're also paying out at this moment. So the reality is from a riskadjusted basis based on Meta's current valuation. Things are starting to look interesting. The one caveat to this of course is what will the return on investment on their capex spending actually look like? We're talking about a company that's really just now starting to get deep into their capex cycle. Capex is nearly set to double from where it was in 2025. Now, that being said, there are some other things to make note of as we go through the earnings report. We can see Mark Zuckerberg stated, "We're getting a lot of offers for compute at a significant premium over what we paid for it." That's a great sign. And then MEZ also starting to get more into the subscription business. They've discussed this a little bit in the past, but they're providing new tools to create and stand out, which when you think about their business model, it makes a lot of sense. Since 99% of their revenue is currently advertising revenue, it's a little more dependent on what advertisers are willing to pay. But if you can get a subscription layer over that at the exact same time, all of a sudden, revenues become much more predictable, recurring in nature. But again, at the end of the day, it all ultimately boils down to the ROI on the capex spending. So, a couple things to think about. How does increased capex spending, how does enhancing the AI capabilities of Meta actually benefit their platform? Well, think about it. All of a sudden, if they can create better content recommendations, they'll get better engagement. If they can use AI to better target ads and increase conversion rates, that's going to substantially increase the profitability and the margins of the business. What if they can provide automated ad creation tools? And then the big one that we mentioned just a moment ago would be the potential to sell computing capacity or AI services externally. So, to be completely transparent on where I stand, I think the sell-off is not completely justified. I think Meta is trading at a fairy ver valuation at its current levels now down to $528 in after hours. With that being said, if you buy in right now, you have to understand that you're going to be riding out 3 to four more years of significant capex spending. The company is not going to start generating massive free cash flow again over the next 2 to 3 years. So, more than anything, it's a bet into the investments that the company is currently making. But as we can see from a valuation perspective, if things play out nicely and they're valued at maybe a 22.5 PE multiple, this is where forward-looking returns really get attractive at current prices. And keep in mind that's based on the market close price. If we bump it down to around 540, close to where they're trading right now, it gets really attractive. We're talking about 18 to 19% compounded annual growth rates through the year 2029 to 2031. So there you go. There's an update on Meta Stock. It's continuing to sell off in after hours. The core business is still doing exceedingly well. Revenue growing at a high rate and earnings and operating cash flows growing at a high rate. They had a few onetime expenses and capex spending as well as guidance for capex continues to grow. So go ahead and let me know what you think in the comments down below if you plan on buying or selling. And like always, don't forget to like and subscribe to the