Meta shares experienced a decline of about 5% in after-hours trading following the company's report of lower quarterly profit and an increase in its capital spending outlook. The stock had already decreased by approximately 1% during the regular session before the earnings report was released.
In its second quarter, Meta reported a revenue of $60.8 billion, an increase of 28% year-over-year from $47.5 billion, surpassing Wall Street's expectations of around $60.2 billion. However, diluted earnings fell by 13%, landing at $6.18 per share, which was lower than analysts' projections of roughly $7.19. Additionally, net income saw a 14% drop to $15.8 billion, and income from operations decreased by 8% to $18.8 billion.
This decline in profit coincided with a staggering 55% rise in total costs and expenses, which reached $42 billion, largely due to $2.4 billion in legal charges and $1.18 billion in severance expenses related to recent workforce reductions. As a result, Meta's operating margin fell to 31%, down from 43% in the same quarter last year, a shift attributed to soaring costs surrounding its artificial intelligence investments and other forward-looking initiatives.
In terms of capital expenditures, the company reported $31.08 billion for the quarter, nearly doubling its expenditure from $17.01 billion during the same period last year. Meta adjusted its full-year capital expenditure forecast to a range of $130 billion to $145 billion, up from a prior forecast of $125 billion to $145 billion. This increase in spending directly impacted cash generation, with Meta generating $31.9 billion in operating cash flow, but reporting a constrained $784 million in free cash flow, significantly down from $8.55 billion the previous year.
Despite the challenges, Meta's advertising business showcased resilience. The number of ad impressions across its family of applications increased by 14% year-over-year, and the average price per ad rose by 12%. Moreover, the company reached an average of 3.60 billion daily active users in June, reflecting a 3% growth from the previous year.
The Family of Apps division was the main revenue driver, contributing $60.37 billion in revenue and $23.39 billion in operating income. On the other hand, Reality Labs reported revenue of $431 million but faced an operating loss of $4.62 billion.
Looking ahead, Meta provided a third-quarter revenue forecast of between $61 billion and $64 billion, with the midpoint slightly below analyst expectations of around $63.1 billion. Additionally, the company raised its full-year expense forecast to between $165 billion and $169 billion to account for the recently recorded legal charges. Despite the uptick in expenditures, Meta remains optimistic, maintaining its outlook for full-year operating income to exceed its 2025 results.
Lastly, investor attention is increasingly focused on how technology companies like Meta can efficiently yield returns from substantial investments in artificial intelligence, data centers, and related infrastructure. This scrutiny underscores the critical relationship between expenditure in high-tech developments and subsequent financial performance in an ever-evolving marketplace.