What the Meta Platforms trial means for investors
Investors are keeping a close eye on opening arguments in the Meta Platforms child privacy case that starts on Tuesday. A group of 29 states filed suit against the Facebook and Instagram parent, arguing that Meta violated a federal child privacy act, various consumer protection statutes and fostered addictive behavior in teens and children. Attorneys for Meta said the company could be on the hook for as much as $1.4 trillion – nearly the total size of Meta’s stock market value – though lawyers representing the states told a judge last week that $200 billion is probably a more realistic number. Even more significant than any potential monetary penalty, however, is the possibility that Meta could be forced to make backend changes to its social media products, hurting its core advertising business. Algorithm changes “They’re talking about eliminating things like infinite scroll [and] changing the algorithms. These are things that are key to how social media products work,” Gil Luria, head of technology research at DA Davidson, told CNBC. “With infinite scroll, their ability to keep consumers in the application increased dramatically, and [that meant] they could sell a lot more ads.” Options markets are pricing in a $30 move in Meta stock through the end of August, or about a 5% move, JJ Kinahan, senior vice president at Cboe Global Markets, told CNBC on Tuesday. Through the end of September, option pricing suggests as much as a $55 move, or a 10% change. In midday trading Tuesday, Meta stock was down about 3%. META 5D mountain Meta 5 day “I would be careful as a retail trader to make a move [based] on every twist and turn in the trial,” Kinahan said. “Are you comfortable holding the stock right now, knowing that’s the expected move? To me, that’s the question.” Paul Meeks, managing director at Freedom Capital Markets, thinks the pressures facing Meta – both the legal issues and those related to its artificial intelligence investments – mean it’s a good time to avoid shares in CEO Mark Zuckerberg’s company. “I’d wait on the sidelines. There could be more pressure on the stock,” Meeks said Tuesday. “There are also doubts about its potential ‘profitless prosperity’ AI spending,” which he said is even more important than the legal challenges. Trading on headlines Still, professionals on Wall Street are gearing up to trade on every headline coming out of the trial. “Keep paying attention to these headlines,” JPMorgan traders wrote in a desk note last week. “This ain’t nothing.” Headlines mentioning potential algorithmic changes and product modifications are likely to drive stock moves over the course of the trial. “The question is whether some of the company’s activities are meaningfully curtailed or prohibited in the future,” Mike Khouw, YieldMax strategist at Tidal Financial Group, said. “That financial impact could be larger than the settlement/judgment amount.” Remedies being sought by states attorneys are potentially transformative, said former Justice Department antitrust chief Jonathan Kanter. “They’re requesting that Meta delete the data that it acquired from children unlawfully, as [the suit] alleges, and then also eliminate the models that it trained using that data,” Kanter said. “The significance of the remedies here can be quite profound, both for this case and for future cases, including companies with AI frontier models.”
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