Wall Street loves a good revenue beat until unexpected bills arrive. Meta just pulled in a massive $60.8 billion in revenue for the second quarter, marking a healthy 28% jump from the previous year.
Yet, investors hit the sell button anyway. Meta shares slid 4.2% in after-hours trading down to $560.85.
If the core business is growing, why are shares dropping? The answer lies in a heavy mix of massive legal proceedings and recent workforce restructuring expenses that severely dragged down net profits.
Where the Money Went
Everyone looks at the top line, but profit tells the real story. Meta earned $15.85 billion, or $6.18 per share, during the April-June window. That sounds like an ocean of cash, but it represents a 14% drop from the $18.34 billion, or $7.14 per share, hauled in during the same period last year.
Total expenses spiked by 55% year-over-year to hit $42.03 billion. Two major line items drove that spike:
- Legal proceedings charges totaling $2.40 billion
- Severance expenses of $1.18 billion tied to recent layoffs
When you write multi-billion-dollar checks for legal defense and corporate restructuring, the bottom line takes a direct hit. Free cash flow bore the brunt of this pressure, crashing 91% down to just $784 million compared to $8.55 billion a year ago.
The AI Push and Changing Headcount
Mark Zuckerberg is steering the ship hard toward artificial intelligence. Fresh off publishing a high-profile essay arguing that AI will soon deliver personal superintelligence to everyone, the company is spending aggressively to capture market share.
Meta's total headcount sits at 75,472 employees as of June 30. That is a modest 1% drop from the previous year, but it still includes thousands of workers impacted by restructuring initiatives. Severance payouts from these streamlining efforts ate deeply into Q2 earnings.
Wall Street analysts are growing anxious about the ballooning cost of this AI pivot. Meta raised the lower end of its full-year expense guidance to sit between $165 billion and $169 billion, largely driven by ongoing legal costs.
What This Means for Shareholders Moving Forward
Meta is forecasting third-quarter revenue between $61 billion and $64 billion. The midpoint of that guidance falls short of what many analysts were hoping to see, proving that caution is creeping into institutional portfolios.
Daily active users across Facebook, Instagram, WhatsApp, and Messenger still grew 3% to reach 3.6 billion. Engagement is not the problem. People are using the apps more than ever.
The core challenge is margin compression. If Meta wants to regain its momentum on the stock market, management needs to prove that billions in legal headwinds and infrastructure spending will eventually translate into sustainable, high-margin AI products. Until those returns materialize clearly on the balance sheet, expect jittery trading sessions every time legal or operational costs tick upward.
