68 percent: Meta's cost surge and the new non-voting stock meant to pay for it

Meta has confirmed that it is moving forward with the creation of a new class of non-voting stock. This strategic financial move is designed to raise capital for the company’s aggressive expansion in artificial intelligence without diluting the voting control of its current shareholders. The announcement came on Wednesday during the company's third-quarter earnings call, verifying reports that had circulated earlier in the day.

The financial rationale for this new instrument is rooted in the company's rapidly climbing expenses. While Meta posted strong top-line growth, its costs and expenses surged by 68 percent year over year. The new shares are intended to serve as a flexible tool for funding, allowing the company to support employee compensation, acquisitions, and other corporate activities. This approach preserves the voting power of existing Class A and B shareholders, thereby maintaining the founder-led structure that has defined the company's governance.

Susan Li, the company's chief financial officer, detailed the mechanics of the plan. She stated that the new class of non-voting capital stock will be distributed to all existing shareholders through a stock dividend. Li explained that the goal is to create a publicly traded instrument that can be used for general corporate purposes. This flexibility is critical as the company seeks to invest in the momentum it claims to be seeing across its business units, particularly those driven by AI.

The financial results for the quarter provided context for why such funding mechanisms are necessary. Meta generated $64 billion in revenue, representing a 26 percent jump from the same period in the previous year. These figures beat Wall Street expectations, signaling strong demand for the company's core products. However, the significant rise in operating costs underscores the heavy capital expenditure required to sustain this growth and develop new technology.

Not all divisions are contributing equally to the bottom line. Reality Labs, the unit responsible for virtual and augmented reality hardware and software, continues to operate at a loss. Despite this, the company expects these losses to shrink compared to 2025 levels. Management projects that the division's deficits will narrow to a range between $18 billion and $19 billion in the coming period, indicating a gradual path toward improved efficiency in the extended reality space.

The push into AI has been a central focus of the company over the past year. Meta has released a series of models, including Muse Spark and Muse Glimmer earlier in the year. Recently, the company introduced Muse Wonder and Muse Spark Open, the latter being an open-weight model that allows external developers to access and build upon its underlying parameters. Additionally, Meta launched Muse Code, a coding agent designed to assist software developers, and debuted new avatar options for its AI assistant at its Connect event.

Adoption metrics suggest these AI efforts are gaining traction. CEO Mark Zuckerberg noted that more than 10 million people in the United States and Canada have set up personal agents using Muse within just a month and a half. He described the growth as strong, noting that the app has consistently ranked at number one in the App Store. Zuckerberg indicated that the company is entering an operational phase focused on scaling the product to eventually serve billions of users.

Despite the optimism surrounding AI, the company acknowledges ongoing challenges in the regulatory landscape. Li mentioned that Meta is monitoring active legal and regulatory matters that could impact its financial results. Specifically, the company is facing increased scrutiny regarding youth-related issues in several markets. Multiple trials concerning these matters are scheduled to take place in the United States in the coming months, adding a layer of uncertainty to the business outlook.

The creation of this new stock class represents a significant shift in how Meta manages its capital structure. By separating voting rights from economic ownership for this new tranche, the company aims to unlock liquidity and investment capacity. This strategy allows Meta to pursue its ambitious AI roadmap while protecting the decision-making authority of its core shareholder base, a balance that will be closely watched by investors and analysts alike.