Meta Stock Drops 10% After Q2 Earnings Miss, Free Cash Flow Collapses 91%

Meta Platforms reported second-quarter earnings on July 29 that missed profit forecasts but beat on revenue, yet shares tumbled 10% in extended trading. The company’s free cash flow collapsed 91% to just $784 million as capital expenditures nearly doubled to $31.1 billion for AI infrastructure. Meta raised its full-year capex guidance to $130-145 billion, up from $125-145 billion, signaling continued massive spending on unproven AI products with uncertain returns.

Earnings beat revenue but miss on profits

Meta reported Q2 revenue of $60.80 billion, beating analyst estimates of $60.17 billion and growing 28% year-over-year. However, earnings per share came in at $6.18, well below the $7.22 consensus forecast. Net income fell 14% to $15.85 billion from $18.34 billion a year earlier, weighed down by $2.40 billion in charges related to layoffs and legal expenses. Advertising revenue, Meta’s core business, rose 27% to $59.36 billion as ad impressions grew 14% and average price per ad climbed 12%.

Free cash flow plummets as AI spending doubles

Meta’s free cash flow dropped 91% to $784 million in Q2 from $8.55 billion a year earlier, marking the lowest level in at least five years. Capital expenditures nearly doubled to $31.1 billion in the quarter as the company poured money into AI data centers, servers, and chips. Operating cash flow came to $31.9 billion, meaning Meta spent almost every dollar generated on infrastructure. CEO Mark Zuckerberg defended the spending, saying AI is “accelerating our core business” and opening “entirely new enterprise opportunities,” though no meaningful revenue from these efforts has materialized yet.

Guidance disappoints, capex raised despite cash concerns

Meta issued Q3 revenue guidance of $61-64 billion, with a midpoint of $62.5 billion, below analyst expectations of $63.15 billion. The company narrowed its full-year capex guidance to $130-145 billion from $125-145 billion, signaling it will spend even more on AI infrastructure. CFO Susan Li told analysts that selling AI technology to other companies would help drive returns on spending, but such revenue streams have not yet materialized. Analyst Mike Proulx at Forrester warned the spending echoes Meta’s metaverse missteps, when the company spent tens of billions on virtual reality that failed to gain traction.

Meyka data signals caution amid analyst support

Meyka rates META a B+ with a neutral recommendation, though the stock’s RSI of 41.77 shows oversold conditions. Analyst consensus remains strong with 4 Buy ratings and 1 Hold, but Meyka’s valuation metrics flash red: the PE ratio of 17.6 sits below the TTM average of 21.2, yet the price-to-free-cash-flow ratio of 31.2 is dangerously high given the cash flow collapse. Meyka’s 12-month price forecast of $762.21 implies 30% upside from current levels, but that assumes AI spending eventually generates returns. Daily active users on Meta’s family of apps grew 3% to 3.6 billion, slightly below the 3.61 billion Wall Street expected.

Final Thoughts

Meta faces a critical test: its massive AI spending must deliver new revenue streams soon or investor patience will evaporate. With free cash flow nearly eliminated and capex rising, the company is betting its future on AI products that do not yet exist. Meyka’s B+ grade and analyst consensus suggest the stock has downside protection, but the 91% cash flow decline is a red flag that cannot be ignored.

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