Meta Authorizes Nonvoting Class C Stock to Fund AI Spending as Free Cash Flow Turns Negative

Meta used its third-quarter earnings report on October 21 to change the machinery of how it will pay for artificial intelligence. Alongside better-than-expected results, the board authorized a new publicly listed, nonvoting Class C common stock that will be distributed as a one-time stock dividend, one new share for each existing Class A and Class B share, with an effective date of January 19, 2027. Economically it works like a two-for-one split; in governance terms it changes nothing, since the new shares carry no votes.

The company framed the move as a way to raise capital for developing and delivering AI models without touching Mark Zuckerberg's voting control. The authorization followed a unanimous recommendation from a special committee of independent directors, and Meta said further details will come in a Form 8-K and an information statement filed with the SEC. The near-term question of what Meta will do with the new class, acquisitions, AI talent packages, or straight cash raises, was left open.

The financial backdrop explains the urgency. Q3 revenue came in at $64.6 billion, up 26 percent year over year and above the roughly $63.4 billion analysts expected, with ad impressions up 10 percent and average price per ad up 14 percent. Net income of $9.9 billion looks dramatic at up 264 percent, but diluted EPS of $3.83 fell well short of the roughly $6.54 consensus because Meta booked a $9.9 billion charge tied to its August settlement with state attorneys general over teen mental-health litigation, an agreement that can cost up to about $18.6 billion over ten years.

Costs are growing faster than revenue: total costs and expenses jumped 68 percent to $51.6 billion, pushing the operating margin from 40 percent a year ago to 20 percent. Capital expenditure reached $34.9 billion in the quarter, and Meta lifted the lower bound of its 2026 capex guidance to $135-145 billion from $130-145 billion, citing chips and data centers for AI. Guidance for 2026 total expenses rose to $175-179 billion.

The most striking line in the release is cash flow. Free cash flow was negative $2.2 billion in the quarter, the first negative reading since Meta went public and a sharp swing from positive $10.6 billion a year earlier, though better than the negative $9.4 billion analysts had feared. Meta is now in the company of the hyperscalers it competes with: spending so aggressively on AI infrastructure that the core business no longer funds it alone.

On the AI product side, Zuckerberg said the family of apps reached 3.64 billion daily users, and that Muse, the consumer AI assistant launched in September, has passed 10 million sign-ups in the US and Canada in about six weeks. Company-reported engagement figures suggest more than a quarter of Muse users have made purchases through the app with an average order above $200; Sensor Tower separately counted 10.9 million downloads, 10.2 million of them in the US. Meta also said it is standing up a new business line selling AI tools to enterprise customers.

Investors initially pushed the stock up more than 6 percent after hours before the gain narrowed. The Class C structure echoes the playbook of Alphabet, whose own nonvoting shares were created in 2014, but the timing is the message: Meta wants the option to raise equity-scale money for AI on demand, and it is building the pipe before it needs the water.