Revenue grew 28% year-over-year to $60.8 billion (27% on a constant currency basis). But profit fell: net income was $15.8 billion versus $18.3 billion a year ago, down 14%. Diluted EPS was $6.18 versus $7.14, basic EPS $6.23 versus $7.28. Diluted share count barely changed: 2,566 million versus 2,570 million.
The reason profit fell is straightforward: expenses grew faster than revenue. Costs and expenses jumped 55% to $42 billion. Operating margin fell from 43% to 31%.
Tax burden also rose separately: the effective tax rate climbed from 11% to 16%, and the tax provision itself grew 32% ($2.9 billion versus $2.2 billion). On top of that, the "interest and other income (expense), net" line slipped into a small loss for the quarter — negative $19 million versus positive $93 million a year ago.
What ate into profit
- $2.4 billion in one-off charges related to legal proceedings (booked under general and administrative expenses)
- $1.18 billion in severance costs tied to the May 2026 headcount reduction
- R&D expenses jumped sharply: from $12.9 billion to $21.7 billion — nearly doubling
- General and administrative expenses rose from $2.7 billion to $5.6 billion
Operating metrics
- Family daily active people (DAP) — 3.60 billion on average for June, up 3% year-over-year
- Ad impressions grew 14%
- Average price per ad grew 12%
- Advertising brought in $59.36 billion (up 27% year-over-year, 26% on a constant currency basis)
- A separate line for other revenue within Family of Apps — $1.01 billion versus $583 million a year ago
Segments
Family of Apps (Facebook, Instagram, WhatsApp, Messenger, etc.) generated operating income of $23.4 billion — down year-over-year (was $25 billion), on segment revenue of $60.37 billion.
Reality Labs (VR/AR) stayed in the red — a $4.6 billion loss for the quarter, roughly in line with last year's $4.5 billion, on revenue of just $431 million. For the first half of the year, RL's loss totals $8.6 billion.
Capex and cash flow
Capital expenditures (including finance lease principal payments) came to $31 billion for the quarter. That hit free cash flow hard: it collapsed to $784 million, down from $8.5 billion a year ago — nearly an 11x drop. For the six-month period the decline is less dramatic: $13.17 billion versus $18.88 billion.
Operating cash flow, meanwhile, grew — from $25.6 billion to $31.9 billion for the quarter. There's a notable movement within it in deferred taxes: positive $1.45 billion versus negative $1.17 billion a year ago — one of the reasons operating cash flow trended differently from net income.
Cash used in investing activities nearly doubled — $49.6 billion for the quarter versus $26.0 billion a year ago. The main contributors were purchases of securities ($42.6 billion) and capex ($30.1 billion). Meanwhile, investments in non-marketable equity stakes in other companies dropped sharply — $1.13 billion versus $15.1 billion a year ago, almost a 13x decrease (last year included some large one-off strategic investment). There were also payments for held-for-sale assets — $556 million versus $775 million — and acquisitions of businesses and intangible assets — $101 million versus $61 million.
The picture in financing activities reversed: an inflow of $16.0 billion versus an outflow of $16.0 billion a year ago. Two reasons: the company took on a large amount of debt for the first time in a while — issuing $24.9 billion in long-term debt — while conducting zero buybacks this quarter (versus $10.2 billion repurchased a year ago). Long-term debt on the balance sheet rose from $58.7 billion to $83.7 billion.
Dividend payments were $1.35 billion for the quarter.
Cash and marketable securities stood at $90.3 billion at quarter end.
Balance sheet
Assets grew notably — from $366 billion to $450 billion. The main driver was property and equipment, up from $176 billion to $225.7 billion — this is about AI infrastructure buildout.
Other balance sheet changes:
- Restricted cash (within other assets) jumped sharply — from $1.66 billion to $13.1 billion
- Non-marketable equity investments in other companies rose from $27.5 billion to $30.2 billion
- Accounts receivable rose from $19.8 billion to $21.8 billion
- Goodwill dipped slightly — from $24.5 billion to $23.4 billion
Headcount
Headcount was 75,472, down 1% year-over-year. This figure still includes about 8,000 employees affected by the May reduction — most of them will no longer be reflected in headcount by the end of the third quarter.
First-half results tell a different story
Looking at the first half of 2026 rather than just the quarter, the picture looks better:
- First-half revenue: $117.1 billion versus $89.8 billion a year ago — up 30%
- First-half net income: $42.6 billion versus $35.0 billion — an increase, not a decline
The difference comes down to the fact that for the six-month period, the tax provision was actually negative — a $2.1 billion tax benefit rather than an expense. That significantly improved the overall first-half profit picture, even though the second quarter on its own came in weaker than last year because of one-off charges and a higher tax rate specific to this quarter.
Q3 and full-year outlook
- Q3 2026 revenue: $61–64 billion
- FX is expected to be a modest headwind — about a 1% drag on year-over-year revenue growth
- Full-year 2026 total expense guidance was raised: $165–169 billion (the low end was raised to account for the $2.4 billion legal charges)
- Full-year operating income is still expected to come in above 2025 levels
- 2026 capex: $130–145 billion (narrowed from the prior $125–145 billion range)
- The tax rate for the remaining quarters of 2026 is expected to be 15–17% (up from the prior 13–16% guidance)
Management separately noted: legal proceedings around youth-related issues continue in several markets, with a number of youth-related trials scheduled in the U.S. this year, which could ultimately result in a material loss.
Bottom line
The business is growing solidly on both revenue and ad metrics — ad demand isn't softening. Quarterly profitability took a hit from a combination of factors: one-off legal charges, severance costs, a higher tax rate, and a sharp jump in infrastructure investment that nearly wiped out free cash flow. Yet first-half profit still grew — largely thanks to a tax benefit in the first quarter. The $25 billion debt issuance and the pause on buybacks this quarter suggest the company is partly financing its capex with debt while holding onto cash. Zuckerberg's comment frames AI as the driver of both the current business and future products — R&D and infrastructure spending back that up directly.
