Meta 3Q26 Earnings: Go Muse or Go Home
Hello everyone. Yesterday, an iPhone Duo arrived at Above Avalon HQ. We will talk more about the device next week. For today’s update, our focus is on Meta which kicked off Big Tech earnings season. There were several interesting observations to go over regarding Muse, AI capex, and AI hardware. Let’s jump in.
Meta 3Q26 Earnings: Go Muse or Go Home
Meta’s digital ads business remains a runaway train. Achieving 26% top-line revenue growth off in 3Q26 on a $50B quarterly base is impressive. Reiterating a point that we have previously used to describe Meta, the company has digital real estate that more than three billion people enjoy spending an increasing amount of their day on. While the incredible ad impressions growth seen earlier in the year has subsided, 3Q26 ad impressions was still up 10% with average price per ad up 14%. Meta is also continuing to push on the subscription revenue front, a trend that has been quietly gaining steam across Big Tech for some time now. If grading Meta’s business strictly from a revenue basis, all is well.
The Meta story, at least from a financial perspective, continues to become more complicated as one moves down the income statement. Costs and expenses, excluding a one-time $10B litigation charge, was up 32% in 3Q26. This means Meta’s operating income, adjusted to exclude the litigation charge, was up a more down-to-Earth 11%. For context, Apple is on track to report 16% operating income growth for full-year FY26. Apple generates about 50% more operating income than Meta as well. While it would be incorrect to assume all of Meta’s higher expenses is directly supporting reported revenue generation, we can’t completely brush away Meta’s declining operating margins as a consequence of future investments. Meta is needing to put more cash into the business to generate its impressive advertising revenue. This paints that impressive revenue growth in a slightly less rosy shade.
Turning to Meta’s earnings call, a couple of things caught my attention.
1) Meta was very eager to talk all things Muse. The word “Muse” was mentioned 96 times on the call. Based on management’s commentary, 10M people signed up for Muse (which has an extremely easy signup process). Based on the estimated number of Meta users in the U.S. and Canada, 10M people equals a < 3% adoption rate. Of that 10M, about
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