The Zhitong Finance App learned that Facebook and Instagram parent company Meta (META.US) have recently been simultaneously facing youth addiction lawsuits, minor data privacy disputes, California social media harm loss, New Mexico's US$940 million compensation order, and more than 4,300 families, individuals, and public school districts over child and adolescent addiction lawsuits. This is why Meta's stock price has fallen by more than 13% this year and outperformed the S&P 500 index. Meta shares rose 1% before the market on Wednesday, following reports that the company discussed settling a major lawsuit with state attorneys general; the case accuses Facebook and Instagram of deliberately making children and young people addicted.
However, the relatively positive side is that its stock price has responded positively to the news of the potential settlement, indicating that the market's pricing focus has changed from “whether huge compensation is required” to “whether to reduce the open tail risk of up to 1.4 trillion US dollars to a one-time, measurable cost of billions of dollars.” According to Gary Blake, managing director of Future Fund, even if the settlement amounts to several billion dollars, as long as it removes the uncertainty of extreme rulings, lengthy appeals, and platform rectification, it may become a risk clarification catalyst for Facebook's parent company Meta stock price.
Future Fund managing director Gary Blake said that even if the settlement amounts to several billion dollars, it could drive Meta's stock price higher by turning a legal threat with no clear upper limit into a determined cost. Blake said on social media platform X: “Investors will see this as a one-time, non-recurring event.” He said that even if the settlement costs billions of dollars, it is still “positive” for META's share price.
According to media reports, citing information revealed by people familiar with the matter, Meta discussed a potential agreement with attorneys general representing 29 states while the federal court trial in Oakland, California was in the second week. States accuse Meta of continuing to mislead users over security issues even though they knew the features it designed would encourage young users to become addicted to and compulsively use the platform. States are also accusing the company of violating federal privacy laws and illegally collecting data from children under 13.
Meta denies the allegations and instead alleges that states are demanding that the company make unreasonable changes to the platform, while also demanding “ridiculous compensation” from the company.
The potential financial exposure is enormous, as the fines could be added up against millions of young Facebook and Instagram users, respectively. According to a calculation report by Meta representatives, any adverse ruling involving children and adolescents could cost them up to $1.4 trillion, almost equivalent to the company's market value.
Escaping the $1.4 trillion “nuclear button”: Can a one-time settlement end the litigation discount? Blake believes Meta is poised to escape the $1.4 trillion risk.
Blake's latest statement is a shift from his warning earlier this week. He previously warned that the trial could continue to suppress Meta shares until a consulting jury makes a verdict; the ruling is expected to be announced in early October.
He had previously compared this legal threat to tobacco lawsuits in the 1990s and warned of a possible “trillion-dollar judgment” first, followed by an unfavorable appeal process. The jury will issue an advisory ruling, but US District Judge Yvonne Gonzalez Rogers will decide on liability, penalties, and remedies. The appeal will go to the U.S. Ninth Circuit Court of Appeals.
Blake said that Meta may reach a settlement with a fraction of the theoretical maximum amount and push the stock price up, although “other lawsuits will definitely follow.”
The jury has heard the testimonies of Adam Moseri, the head of Instagram, and Meta employees involved in designing the platform's features and studying the behavior of young people. Lawyers also expect CEO Mark Zuckerberg to appear in court.
The trial comes after Meta experienced two recent setbacks. Meta and Alphabet's YouTube lost a lawsuit in a social media harm case in California, which ended up being awarded $6 million; this month, Meta was also awarded more than $940 million in another New Mexico case. Meta, Alphabet, Snap, and TikTok are also facing more than 3,000 personal injury claims from families and individuals across the US, as well as 1,300 lawsuits from public school districts.
Recently, investors are questioning whether the “settlement” will be a compensation bomb or is it possible that the “settlement” will be a risk elimination rocket due to the extreme collision of long and short emotions in Meta?
On the Stocktwits platform, retail investor sentiment about META has changed from “bullish” to “bearish” a week ago. At the same time, the number of news posts unexpectedly dropped sharply by 62% over the past 24 hours.
A Stocktwits user said, “The META settlement means paying more money. This will keep the stock price plummeting tomorrow.” Another user said, “META reports that simply mentioning the word intention to 'settle' is a bullish sign. Any settlement would be a rocket booster for stock prices.”