Meta (META.US), formerly known as Facebook, is addressing the challenge of raising substantial capital while preserving complete control through an innovative capital structure involving the creation of non-voting Class C shares.
The company intends to distribute Class C shares to every existing shareholder on a one-for-one basis according to their current holdings, a move designed to allow Meta to issue new shares without diluting any shareholder's voting power.
This strategic shift comes right after the release of its third-quarter earnings report, which revealed negative free cash flow of $2.12 billion, primarily driven by $34.91 billion in capital expenditures far exceeding cash generated from operations.
A special committee composed of independent directors recommended establishing this new share class, citing several reasons: the third-quarter financial data underscored the need for investment scale; despite revenue growing 26% year-over-year to $64.6 billion, operating cash flow of $32.79 billion still could not cover capital expenditures; and free cash flow in the same period last year was a positive $10.63 billion, highlighting a striking contrast with the current situation.
Additionally, Meta has altered its cash management strategy. After spending $26.25 billion repurchasing Class A shares during the same period in 2025, it conducted no Class A buybacks through September, instead raising $24.91 billion through long-term debt.
Although it held $82.45 billion in cash and marketable securities as of September 30, the specific plan or timeline for selling Class C shares has not yet been disclosed in earnings reports or 8-K filings.
Data compiled by Woofun AI shows that to ensure stable control, Mark Zuckerberg signed a separate "Founder Alignment Agreement" on October 20, strictly limiting his ability to sell new shares in a way that would reduce his own voting power.
Under this agreement, of the Class C shares allocated to Zuckerberg and certain designated transferees, only 20% can be freely sold, while the remaining 80% typically must be matched through the sale or conversion of his voting shares.
As long as he remains a company executive, 2.5% of the dividend-like shares will be released from restrictions each quarter. Zuckerberg has also committed to residing in California or at Meta's headquarters location for at least eight years while serving as CEO, unless significant unforeseen circumstances arise.
At the same time, Meta must use its best efforts to ensure that Class A share repurchases are at least commensurate with Class C share repurchases, with these sale restrictions and buyback rules taking effect only after the new shares are issued.
The new share class will officially launch on January 19, 2027. The board has not yet determined the record date or dividend payment date, but payment must be completed within five business days.
Once the dividend is distributed, Meta expects Class A shares to trade at a price equivalent to a two-for-one split.
This move is not the first of its kind for Meta. Alphabet (GOOGL.US) took a similar approach in 2014, distributing non-voting Class C shares to existing shareholders.
On the first day of intraday trading, Alphabet's Class C shares were priced at $579.38, while its voting Class A shares were priced at $579.74, with a very narrow spread between the two.
Meta investors will see similar comparative data in January, and the market will test the pricing efficiency of this dual-class structure in the current macroeconomic environment.
Based on the closing price on October 21, Meta's stock rose 2.17% in after-hours trading to $712.65, indicating an initially positive market reaction to the financing plan.
The company also expects fourth-quarter revenue to be between $73 billion and $76 billion, providing expected support for subsequent capital operations.
Notably, this approach of isolating financing from control through the addition of a non-voting share class offers a new template for financial flexibility for large tech companies during periods of high capital expenditure.
From an industry evolution perspective, Meta's move marks a new institutional outlet for large tech giants to balance aggressive capital spending with shareholder returns.
As investment in AI infrastructure continues, free cash flow volatility has become the norm, and traditional equity issuance often carries the risk of control dilution, while the introduction of Class C shares effectively avoids this pain point.
This is the second case in the tech sector, following Alphabet's pioneering move in 2014, of using complex equity tools to address liquidity challenges.
In the future, if Meta can successfully maintain the buyback balance between Class A and Class C shares and enforce strict founder lock-up provisions, this model may be emulated by other tech companies facing similar capital structure dilemmas, thereby reshaping the market's understanding of valuation and control premiums for growth tech stocks.
Investors need to closely monitor market liquidity performance and spread fluctuations between the two share classes after the new shares launch in January 2027 to assess the actual effectiveness of this mechanism.
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