Meta just booked record sales and still had negative free cash flow.
Meta's spending outran the cash its business generated last quarter, and that's a big reason a company growing 26% became one of the catalysts for a falling market Thursday.
Shares of Meta fell about 7%, wiping out roughly $124 billion in market value.
By my count, Meta accounted for about a seventh of the S&P 500's lost value, making it one of the index's four biggest drags along with Nvidia, Amazon and Alphabet.
That said, Meta’s latest earnings report shared a more promising story than its stock move suggests:
Revenue: $64.6 billion, up 26% and a record high
Operating cash flow: $32.79 billion, up 9%
Spending on property and equipment: $33.94 billion, up 80%
Capital expenditures, including principal payments on finance leases: $34.91 billion
2026 capital expenditures outlook, including principal payments on finance leases: $135 billion to $145 billion, with the low end raised by $5 billion
To be sure, spending on property and equipment is growing almost nine times as fast as the cash that pays for it, which investors seemingly took as a red flag.
The last time that spending topped Meta's operating cash flow was the quarter it went public in mid-2012.
Back then it was about $413 million.
Now, the core business isn't the problem. Ad prices rose 14%, and revenue beat Wall Street's forecast by more than $1 billion.
The bigger question is financing and funding. Meta is creating a new class of non-voting Class C stock and says it expects to conduct offerings of those shares from time to time.
CNBC reported that the cost of insuring Meta's debt just hit a record high, a new development for a company that is no stranger to throwing off more cash than it can spend.
And yet analysts were largely bullish on Meta's outlook, owing to its prospects for its Muse AI agent and models, Yahoo Finance reported.
Even Piper Sandler, which trimmed its price target to $850 on higher costs, kept an overweight rating on the stock.
Even so, the latest tech sell-off goes beyond just Meta.
The S&P 500 fell 1.2% and the Nasdaq Composite dropped 2.6% with the final day of trading for the week still ahead.
None of this is to say that Meta can’t afford to play in the AI race. It most certainly can, but its latest cash flow numbers gave its shareholders the jitters anyway.
Elsewhere
🛢️ Oil hit a five-month high after Houthi attacks in Saudi Arabia. Brent crude posted its highest close since May. Saudi Aramco told staff to evacuate its Dhahran headquarters, Reuters reported. (Reuters)
🤖 Jensen Huang said demand for neoclouds is “off the charts.” The Nvidia CEO said scarce capital is holding back growth because “the demand of the capital is much greater than the availability of the capital.” (CNBC)
🧴 Procter & Gamble beat Wall Street’s earnings estimates. Adjusted earnings came in at $2.00 a share versus the $1.88 analysts expected, on $23.3 billion in revenue, as volume grew 2.4%. (CNBC)
💼 Jobless claims fell to their lowest level in three months. Applications for unemployment benefits dropped to 194,000 in the week ending October 17 from 200,000 the week before, another sign that layoffs remain low. (PBS NewsHour)
Rapid-fire
Moderna stock plunged after a possible leak of Phase 3 data for its cancer vaccine (Yahoo Finance)
President Trump asked Elon Musk to lift a Starlink slowdown in Ukraine, the Wall Street Journal reported (CNBC)
Anthropic’s upcoming IPO is poised to drive blockbuster gains for Iconiq, Spark and other backers (Bloomberg)
Blackstone’s Jon Gray said CoreWeave will “find a way through” its financing pressure (CNBC)
Tesla and SpaceX are moving more in step than at any time since SpaceX’s IPO (Opening Bell Daily)
Western Digital stock had fallen after each of its last 3 earnings reports before Thursday’s (Opening Bell Daily)
Full Signal
Jérémie Boyer is co-founder and lead research analyst at Montreal-based Aurelion Research. We sat down to discuss NATO’s defense spending push, the uranium squeeze and the eight stock picks he thinks US investors are overlooking right now.
Tune in on Spotify, Apple Podcasts, or YouTube.
On this day
🗓 October 23, 1929: The Dow Jones Industrial Average fell 20.66 points, or 6.3%, to 305.85 as panic selling swept the market in the final hour of trading. The next day became known as Black Thursday.
Last thing
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