Meta shares fell nearly 7% on Thursday after the social media company reported negative free cash flow for the third quarter and increased the lower end of its expected annual capital expenditure, intensifying investor concerns over the cost of its artificial intelligence investments.
The company reported free cash flow of negative $2.12 billion for the quarter, while raising its full-year capital expenditure forecast to between $135 billion and $145 billion. The minimum of the range was previously $130 billion.
The cost of insuring against a potential default on Meta’s debt also rose, with spreads on its five-year credit default swaps reaching an all-time high on Thursday. The increase signalled growing credit concerns among investors as the company presses ahead with its AI spending plans.
Despite the pressure on cash flow and credit indicators, Meta reported strong revenue growth for the quarter. Revenue rose 26% from a year earlier to $64.60 billion, exceeding analysts’ expectations of $63.37 billion.
The company reported earnings per share of $3.83, although it was unclear whether that figure was directly comparable with the $5.75 per share expected by Wall Street.
Meta also disclosed plans to create a new class of nonvoting Class C common stock in its earnings announcement on Wednesday. According to the company, the new share class is intended to maintain its “founder-led structure” while providing the ability to finance its growth.
The move comes as Meta continues to pursue substantial investment in artificial intelligence, with the higher capital expenditure forecast indicating that its spending requirements are expected to remain considerable.
The company’s filing also addressed the potential financial implications for chief executive Mark Zuckerberg if California’s proposed “Wealth Tax” were to pass. Meta said Zuckerberg could leave the state because he “could become liable for a significant, multi-billion-dollar tax payment based on his ownership of stock in the Company”.
The filing said Zuckerberg had been convinced to remain in California through the company’s new stock plan.
The proposed Class C shares would give Meta another means of financing its expansion while maintaining its founder-led structure, according to the company.
