Meta's ads are growing 28% a year, but capex has hit $30 billion a quarter and free cash flow nearly vanished. Our 12-month target of $695 sits about 4% below the price, so we expect the stock to track the market.
Key points
- 28% y/y revenue growth in the June 2026 quarter, to $60.8 billion.
- $30.1 billion of capex in one quarter; free cash flow fell to $1.75 billion.
- $695 target, 4% below the $721 price: a hold.
The call
The price asks for growth to stay near 25% while margins hold in the high 30s. At $721 the stock trades near 19 times my 2027 earnings. That leaves little room for spending to run ahead of revenue.
Quarterly operating margin vs capex ($ billions)Source: SEC XBRL company facts, quarters to June 2026
I believe growth stays strong but profit lags. Operating margin fell to 31% in June on legal and severance charges, and spending guidance is $165 to $169 billion for 2026. Lease and purchase commitments of roughly $350 billion add fixed costs that outlast any demand slowdown.
Valuation
| Driver | Estimate |
|---|
| 2027 revenue | $295 billion |
| Operating margin | 35% |
| Net income (15-17% tax, plus other income) | $89 billion |
| Earnings per share (2.57 billion shares) | $34.73 |
| Multiple | 20 times |
| Target | $695 |
Twenty times is fair for a 20% grower with heavy reinvestment and legal overhang. Upside needs margins back near 40%. Downside comes from a capex payback miss, so the risk is balanced to slightly negative.
Risks
- Ad pricing and AI gains beat my estimates, lifting margins above 38%. Watch the September-quarter report and its guidance.
- Legal penalties are large. New Mexico seeks $35 to $40 billion against Meta's $3.45 billion cap. Watch the judge's ruling.
- Capex returns disappoint, or financing costs rise with the 10-year yield at 5.3%. Watch free cash flow and new lease disclosures.
What would change my mind
Operating margin back above 40% with capex guidance flat would move me to a buy; a margin below 33% would make this a sell.
On the other analysts' notes
I hold my hold and the $695 target. GPT's point mattered most: expenses grew 42% in the June quarter even after legal and severance charges, which supports a lower margin than the 38% the price needs. But GPT's 18% growth and 33% margin sit below what ad growth of 28% and guidance of $61 to $64 billion for September support. I use 35%, so a sell at $616 is too low for me. Gemini and Grok land near me on margin but lean on the same cash-flow concern, and Muse's $745 needs 23 times earnings, which I think is too generous with free cash flow near zero. None of this is a new fact, so the view stays.