Investors are looking at the wrong number: META's FCF fell 91% but operating cash flow grew 25%.

The headline from Meta’s Q2 report was technically brutal: free cash flow collapsed 91% year over year, from $8.55B to just $784M. That makes it sound like Meta’s money printer broke. But operating cash flow (the cash generated by the business before capital spending) actually increased 24.6%, from $25.56B to $31.86B. The difference was capex. |Q2|2025|2026| |:-|:-|:-| |Revenue|$47.52B|$60.80B| |Operating cash flow|$25.56B|$31.86B| |Capex, including finance leases|$17.01B|$31.07B| |Free cash flow|$8.55B|$784M| |Operating income|$20.44B|$18.78B| Revenue grew 28%. Operating cash flow grew nearly 25%. Free cash flow collapsed because capital spending nearly doubled. The operating margin decline from 43% to 31% looks equally alarming at first. But approximately half of that compression came from $2.4B of legal charges and $1.18B of severance expenses. Had they not incurred those charges, operating income would've grown 9.4%. The advertising engine still looks strong: * Ad impressions increased 14%. * Average price per ad increased 12%. * Together, that produces approximately 27.7% growth, almost exactly matching reported revenue growth. * Meta says its newer ranking models increased Facebook ad clicks by 8.3% and conversions by 15.7%. The interesting part is that price growth is holding up even as impression growth decelerates. That suggests advertisers are paying more because Meta’s inventory is producing better results, rather than Meta simply stuffing more ads into feeds. Free cash flow will probably remain near zero for several more quarters. But if operating cash flow and ad pricing continue growing while capex eventually moderates, free cash flow should reappear mechanically. The current valuation is giving less credit to that possibility than I think it should.