Ads can still grow mid-teens, yet 2026 capex of about $138 billion leaves almost no free cash. At 22 times 2027 earnings the stock sits near fair.
Key points
- $253 billion 2026 revenue is my estimate from H1 plus $62.5 billion Q3 guidance midpoint and a $73 billion holiday quarter.
- 34% 2026 operating margin after $167 billion of expenses, down from 41% in 2025 because of AI infrastructure and legal charges.
- $31.50 2027 EPS at 15% sales growth and 33% operating margin, then 22 times that multiple.
The call
The $721 price requires about 26 times 2026 earnings of $28.10 a share. That multiple only holds if free cash flow recovers while ads keep compounding at more than 20% and Reality Labs losses stay contained.
I expect slower growth and thinner cash. Capex of $130, 145 billion this year, plus uncommenced leases near $279 billion, turns operating cash into almost no free cash. Ads remain 98% of sales; new agents and glasses have not shown economics.
Revenue and free cash flow ($ billions)- Revenue
- Free cash flow (table)
SEC company facts through Q2 2026; Q3-Q4 2026E and 2027E are mine
Valuation
| Item | Figure |
|---|
| 2026E revenue | $253 billion |
| 2026E operating margin | 34% |
| 2026E EPS | $28.10 |
| 2027E EPS | $31.50 |
| Multiple | 22 times 2027E EPS |
| 12-month target | $692 |
Twenty-two times is a cash-constrained software multiple, not the 30-times peak when free cash was $54 billion. Downside to $620 if 2027 margins stay at 30%; upside to $780 if cash recovers faster. That band is too tight for a buy.
Operating margin by quarterSEC XBRL through June 2026; Q2 includes legal and severance
Risks
- Advertiser returns fall if recommendation gains stall; watch Q3 impression and price growth versus the 14% and 12% of Q2.
- A New Mexico or youth-safety judgment well above the $2.4 billion already booked.
- Capex stays at 2026 run-rate into 2027, keeping free cash near zero.
What would change my mind
A 2026 expense print below $160 billion with company free cash flow above $20 billion would restore a higher multiple.