Social network operator Meta Platforms (NASDAQ: META) announced better-than-expected revenue in Q3 2026, with sales up 26.1% year on year to $64.6 billion. Guidance for next quarter’s revenue was better than expected at $74.5 billion at the midpoint, 1.2% above analysts’ estimates. Its non-GAAP profit of $7.40 per share was 8.8% above analysts’ consensus estimates.

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StockStory’s take

Meta’s third quarter results were shaped by rapid user engagement growth and new product momentum, particularly around its Muse personal agent and increased video consumption on Facebook and Instagram. Management cited strong adoption of AI-powered features, including the Muse agent, as a primary driver of higher engagement and commerce activity. CEO Mark Zuckerberg highlighted that “about 25% of people who have set up Muse use it on any given day,” with shopping and productivity as leading use cases. However, significant legal expenses, infrastructure investments, and elevated costs associated with emerging AI products pressured operating margins and diluted profitability, despite solid top-line growth.

Looking ahead, Meta’s guidance reflects confidence in sustained revenue expansion, underpinned by ongoing AI-driven product innovation and the global scaling of Muse. Management pointed to plans for broadening Muse’s reach, enhanced monetization via commerce and subscription models, and efficiency improvements in compute operations. CFO Susan Li emphasized that “AI investments are already delivering incremental advertising revenue through stronger engagement, better recommendations, and more efficient monetization,” and expects contributions from new AI businesses and enterprise offerings to grow meaningfully over time. The company also flagged continued investment in infrastructure and ongoing regulatory risks as key factors shaping future performance.

Key insights from management’s remarks

Management attributed Q3 performance to the successful ramp of Muse, robust video engagement, and expanding adoption of AI tools, while margins were pressured by one-time legal charges and higher infrastructure spend.

• Muse launch momentum: The Muse personal agent gained over 10 million users in the US and Canada within six weeks, with engagement metrics outpacing previous AI launches at Meta. Shopping was the most frequent use case, with average purchase size exceeding $200 per transaction, signaling early traction for future commerce monetization.
• AI-driven engagement gains: Improvements in content recommendation engines, powered by Meta’s proprietary AI models, led to all-time highs in time spent on Instagram and Facebook. Video, especially Reels, and new AI features drove double-digit growth in user engagement and ad impressions.
• Legal and infrastructure costs impacted margins: Operating margin dropped significantly, primarily due to a $9.9 billion legal charge related to a multi-state attorneys general agreement and increased spending on data centers, cloud infrastructure, and third-party AI tokens to support new product launches.
• SMB and enterprise AI expansion: Management highlighted the rollout of Muse features for small businesses (SMBs) and a new enterprise platform, aiming to automate sales, marketing, and customer support workflows. The company underscored its potential to serve 500 million businesses already using Meta’s apps, with diversified revenue streams planned through subscriptions, APIs, and messaging.
• Reality Labs pivots to AI-first focus: While VR headset sales declined, management is shifting Reality Labs’ investment focus toward integrating Muse and AI-powered experiences in hardware, such as Meta Glasses, anticipating improved profitability in the segment as losses are reined in.

Drivers of future performance

Meta’s outlook is shaped by further scaling of Muse, expanding AI-driven monetization, and efforts to restore margin discipline amid continued investment.

• Global Muse rollout and monetization: Management plans to expand Muse from North America to global markets, but must balance user growth with compute efficiency. The monetization strategy hinges on transaction fees from commerce, direct subscriptions for advanced features, and enterprise adoption, with the goal to serve billions of users and businesses.
• AI and ad platform improvements: Ongoing upgrades to Meta’s ad ranking and recommendation engines, including generative AI tools, are expected to drive further gains in advertising revenue and engagement. Management sees continued room for improvement in personalizing ads and content, which can support long-term growth in the core ad business.
• Margin headwinds and investment needs: Elevated infrastructure and legal costs are expected to persist, with capital expenditures remaining high to support AI and data center expansion. Management noted that achieving significant compute efficiency improvements is critical to making the new AI businesses profitable, while also cautioning about regulatory and legal risks.

Catalysts in upcoming quarters

In the coming quarters, our analysts will be watching (1) the speed and scale of Muse’s global rollout and adoption, (2) progress in bringing down compute costs and improving the profitability of AI-driven products, and (3) the monetization ramp in both consumer and enterprise AI offerings. Developments in legal and regulatory matters and the impact of infrastructure investments will also be key indicators to monitor.

Meta currently trades at $712.47, up from $700.80 just before the earnings. Is there an opportunity in the stock? Find out in our full research report (it’s free).

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