AI Bets Upgraded Again! Meta (META.US) Plans to Issue Class C Shares for Fundraising; Zuckerberg’s “Control” Remains Unchanged

According to Zhitong Finance APP, Meta (META.US) has established a new non-voting stock class to raise funds for its massive investments in Artificial Intelligence (AI). The company announced that its board of directors has approved the creation of publicly traded Class C common stock with no voting rights, which is scheduled to take effect in January 2027. The company plans to implement a one-time stock dividend to existing Class A and Class B shareholders by distributing one share of Class C common stock for each share held. After the distribution, the market price of Class A common stock is expected to reflect a split ratio similar to a 2-for-1 stock split, but the existing shareholders’ voting rights will remain unchanged.

It is reported that the Meta board’s approval was based on the unanimous recommendation of a special committee made up of independent directors with no conflicts of interest. This committee was established by the board to assess the company's capital structure. Both the special committee and the board of directors unanimously believe that, for several reasons, the creation of this new stock class is wise, fair, and in the best interests of Meta and its shareholders:

1. Creation of a new stock class to raise funds, compensate employees, support potential acquisitions, and for other general corporate purposes—Against the backdrop of the AI transformation sweeping the industry, the scale of investment required to maintain competitiveness, sustain growth, expand infrastructure, and pursue new strategic initiatives is enormous. The special committee determined that establishing this new class of common stock would enable Meta to fund its growth and help the company maintain a leading position amid fierce domestic and international competition.

2. Continually create maximum long-term value for all shareholders—Since its founding, Meta's management team has always prioritized long-term goals and value creation. The company's stock price has risen more than 1700% since its IPO, compared with approximately 495% for the S&P 500 over the same period. The special committee hopes Meta will continue to innovate and focus on long-term growth, and the issuance of Class C stock is meant to support this objective.

3. Ensure that founder and CEO Mark Zuckerberg continues to lead Meta into a new era—The special committee unanimously believes that Zuckerberg remains best suited to guide Meta into the future. They recognize that Meta's significant value creation for shareholders is largely attributable to his outstanding leadership, unique and creative vision, and exceptional management skills. The issuance of Class C common stock will perpetuate the founder-led model that the company has adhered to since inception—a model that has driven the company’s success.

Meta's Q3 financial results, released after the U.S. market closed on Wednesday, showed revenue up 26% year-over-year to $64.601 billion, beating market expectations of $63.33 billion; net profit was $9.86 billion, up 264% year-over-year; and diluted earnings per share were $3.83, up 265%, slightly ahead of market expectations of $3.85. Notably, the sharp rise in net profit was mainly due to a low base of comparison caused by high income tax expenses in the same period last year. Meta’s Q3 income tax expense was $3.141 billion, far lower than the $18.954 billion in the same period last year, with the effective tax rate dropping from 87% to 24%.

Operating profit decreased 37% year-over-year to $12.988 billion, and the operating margin fell from 40% last year to 20%. Meta stated that total costs and expenses in Q3 surged 68% year-over-year to $51.613 billion, which includes a $9.89 billion expense recognized as part of a settlement with 52 U.S. state attorneys general over lawsuits related to teen mental health and social media. Excluding this item, the company’s operating profit for the quarter would have been $22.877 billion, and diluted EPS would have increased to $7.40.

By business segment, Meta’s Family of Apps revenue in Q3 was $64.158 billion, with ad revenue of $63.061 billion, up about 26% year-over-year. Ad impressions grew 10% year-over-year, and average ad prices increased by 14%. Reality Labs revenue was $443 million, down from $470 million a year ago, with an operating loss of $4.129 billion.

In terms of user data, the average daily active users across Meta’s Family of Apps reached 3.64 billion in September, up 3% year-over-year. Regarding cash flow, Meta’s operating cash flow for Q3 was $32.786 billion, capital expenditures (including principal payments on finance leases) were $34.906 billion, and free cash flow was negative $2.12 billion. As of the end of September, the company held $82.449 billion in cash, cash equivalents, and marketable securities.

Looking ahead to Q4, Meta expects revenue to be between $73 billion and $76 billion. The company has raised its full-year 2026 total expense forecast to $175–179 billion to include litigation expenses recognized in Q3. At the same time, the company has narrowed its full-year capital expenditure guidance from the previous range of $130–145 billion to $135–145 billion.

Meta expects Reality Labs to post a full-year loss of $18–19 billion this year, which is expected to narrow to approximately $15 billion by 2027. The company stated it will continue to actively invest in Artificial Intelligence infrastructure and new products and expects that improvements to the ad business and opportunities from new products brought by AI investments will support strong overall revenue growth through 2027.