AsianFin -- Meta Platforms, Inc. shares tumbled as much as 9% in after-hour trading on Thursday as the social media titan posted a massive earnings miss for the past quarter due to a nearly $16 billion tax charge.
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Meta’s diluted earnings per share (EPS) for the quarter ended September 30 plunged 83% year-over-year (YoY) to $1.05, whereas analysts called for $$6.68, representing a 10.8% YoY increase. Net income also fell 83% YoY. Operating income gained 18.4% YoY to $18.95 billion, cooling from a 38% gain for the previous quarter. Operating margin fell 3 percentage points YoY to 40%.
Meta attributed the steep fall in profit to a one-time tax charge tied to U.S. President Donald Trump’s One Big Beautiful Bill Act. Implementation of the act led to the recognition of a valuation allowance against our U.S. federal deferred tax assets, reflecting the impact of the U.S. Corporate Alternative Minimum Tax. As a result, the third quarter provision for income taxes includes a one-time, non-cash income tax charge of $15.93 billion.
Without the tax charge, diluted PES for the September quarter would have grew by $6.20 to $7.25. That suggested a nearly seven-fold increase. Net income would have increased by $15.93 billion to $18.64 billion, compared to the reported net income of $2.71 billion. Effective tax rate would have decreased by 73 percentage points to 14%, compared to the reported effective tax rate of 87%. Meta expected a significant reduction in U.S. federal cash tax payments for the remainder of 2025 and future years due to Trump’s tax law.
Meta’s top line delivered stronger-than-expected growth for the third quarter. Revenue logged the highest growth since the first quarter of 2024 and popped 26% YoY to $51.24 billion, beating Wall Street projection of $49.59 billion. The closed-watched bread & butter advertising earned $50.08 billion with a 26% YoY rise, versus analysts estimated $48.59 billion.
Meta needs its advertising business to continue growing in order to fund an expensive expansion in artificial intelligence (AI), which is driving the future of the business through improvements to ads, algorithms and personalization. But headlines from the tax charge to the ongoing regulatory risks are squeezing its profit, posing threat to the profitability when the company is keeping aggressive spending for its AI push.
Looking ahead Meta projected total expenses for the year 2025 between $116 billion to $118 billion, an increase on the lower end after it previously saw $114 billion to $118 billion, and above the estimate $115.63 billion. It raised the lower end of its yearly capital expenditure (Capex) forecast to a range of $70 billion to $72 billion, up from between $66 billion to $72 billion previously and above the estimate $69.3 billion. That marks the third time this year the company has hiked its Capex guidance.
Meta saw investments making within its ads and organic engagement initiatives next year will enable it to maintain the strong revenue growth in 2026, and it requires aggressive investment to meet its compute needs both by building its own AI infrastructure and contracting with third party cloud providers.
Accordingly, Meta anticipated further upward pressure on its Capex and expenses plans in the coming year. The Capex will be “notably larger in 2026 than 2025” and total expenses will grow at a “significantly faster percentage rate in 2026 than 2025”, Meta said in a press release. It noted the expense growth is driven primarily by infrastructure costs, including incremental cloud expenses and depreciation.
In the meantime, Meta cautioned against legal and regulatory risks, including the increasing headwinds in the European Uion and the U.S. that could significantly impact our business and financial results. In the EU, Meta continue to engage constructively with the European Commission on its Less Personalized Ads offering. Tough it cannot rule out the Commission imposing further changes to that offering that could have a significant negative impact on its European revenue, as early as this quarter. In the U.S., a number of youth-related trials are scheduled for 2026, and may ultimately result in a material loss.
