Meta Platforms closed at $587.94 on August 4, fractionally above where it stood before second-quarter results landed. Getting there involved a 7.95% fall on the reaction day, then a three-session recovery that erased the decline entirely. The rating moves from Buy to Watchlist.

Three things went right. Revenue of $60.8 billion grew 28% and beat the $60.19 billion consensus, and acceleration at that scale is a genuine achievement. Engagement set records across the portfolio, with 3.6 billion people using at least one Meta app daily, Instagram passing 2 billion daily actives and Threads crossing 500 million monthly actives. Management still guides full-year operating income above last year’s despite the margin compression.

Three things changed. Earnings of $6.18 per share missed the $7.17 consensus by roughly 14% and also fell 13% from the $7.14 earned a year earlier, so the result declined year over year as well as disappointing expectations. Free cash flow collapsed to $784 million from $8.5 billion, not because operating cash flow fell but because $31.1 billion of capital expenditure consumed it. Share buybacks went to zero from $10.2 billion, while the company issued $24.9 billion of debt in a single quarter.

The valuation argument is where those two lists meet. Meta has been widely described as the cheapest megacap, and on the multiple that description survives. Adding back roughly $3.58 billion of one-off legal and severance charges gives about 20 times annualised earnings for a business compounding revenue at 28%. That is not an expensive share.

The difficulty is that a price-to-earnings ratio prices accounting profit, and accounting profit is the least informative figure in this release. Full-year capital expenditure is guided at $130-145 billion, with the low end raised rather than the high end trimmed. That spending must be depreciated, and the depreciation arrives in future income statements with certainty. A cheap multiple can become a dear one without the share price moving at all.

The cash yield, meanwhile, is approximately nothing. Against a market value near $1.5 trillion, the quarter generated $784 million of free cash flow and returned none of it to shareholders.

None of this establishes that the spending is wrong. It establishes that the case for owning Meta now rests on an unproven capital allocation decision rather than an observable discount, and that the shares have already recovered everything the news cost them. The complete Meta Platforms (META) report, including the scenario analysis behind the downgrade, is on our Reports page.