Victory vs. the “uncertainty factor”: What the global ruling on the social media lawsuit means for Meta

Analysts and investors are calling the settlement of the lawsuit regarding the negative impact of social media on children’s mental health and the privacy of minors’ data a major victory for Meta. However, some market participants point out that Mark Zuckerberg’s company has not yet fully emerged from the zone of legal risks.

As part of a $17 billion settlement the company reached with a consortium of state attorneys general, Meta, in addition to paying the fine, agreed to a number of structural restrictions, including a limit on teens’ use of its services to two hours per day and nighttime restrictions.

Nevertheless, although $17 billion is a substantial amount, it is still significantly less than the $200 billion fine sought by the states, as well as the $1.4 trillion in penalties that lawyers feared could result from potential claims by state attorneys general, notes CNBC.

Against this backdrop, Meta shares closed up more than 1% on August 26; in premarket trading on August 27, they are down 0.5%.

— Jefferies analyst Brent Till called the settlement of Meta’s lawsuit “an important factor in removing uncertainty, which opens the door for the company’s stock,” according to CNBC. The analyst maintained a “buy” rating on the social media giant’s stock and a price target of $825 per share, TipRanks reports. This target is more than 40% higher than yesterday’s closing price.

— Kevin Simpson, CEO of Capital Wealth Planning, believes the news deserved a more positive market reaction: “I’m surprised,” he said. — “In my opinion, if you don’t already own these shares, this is a great opportunity to buy them,” he added, calling the settlement of the lawsuit “a great victory for Meta” (as quoted by CNBC).

— Chris Boshamp, chief market analyst at IG Group, agrees: He noted that the market is reacting positively to the agreement, and investors are relieved that the fine was not harsher, according to Reuters.

— “While the news of a settlement [in the lawsuit] removes one significant source of uncertainty, it does not eliminate all of them,” noted Robert Pavlik, senior portfolio manager at Dakota Wealth (as quoted by Reuters). “The company,” he continued, “still faces numerous lawsuits [related to the impact on children’s mental health or their confidential data], and Meta needs to either settle them or resolve them in some way.” However, Pavlik concluded that the market “views the current settlement as the first hurdle that the company—at least for now—has cleared.”

— At the same time, Dennis Dick, founder of Triple D Trading Inc., points out that uncertainty persists for all companies operating in the social media sector: after all, Meta has not been cleared of wrongdoing.

— “Meta has agreed to structural measures limiting [teens’] use of its services to two hours a day, with a nighttime block from 12:00 a.m. to 6:00 a.m., which will likely impact user engagement and ad volume,” says BMO Capital Markets analyst Brian Pitz (as quoted by CNBC). Pitz maintained his “market perform” investment rating on Meta shares (equivalent to a “hold” rating) with a price target of $580, which is virtually in line with the stock’s closing price on August 26.

— Restrictions designed to reduce engagement among young audiences will change the Instagram and Facebook experience, according to Jim Speta, a professor at Northwestern University’s Pritzker School of Law: “This is undoubtedly a major development,” he said (as quoted by Reuters). However, University of Massachusetts professor Carolina Rossini warns that without a genuine redesign and independent audits to identify the causes of social media’s negative impact on young people, the situation will not fundamentally change: “This is a press release,” she said, noting that “the money compensates for past harm, but it won’t change anything about the product, which will continue to cause it.”

— “It’s important to remember that today’s settlement does not cover the thousands of individual claims related to mental health harm, which may still be significant,” noted TD Cowen analyst Paul Gallant. — “This is not compensation for individual mental health harm alleged by individuals or school districts. Individual claims are likely to be significantly more costly than those brought by schools” (quoted by CNBC).

— Daryl Lim, a law professor at Pennsylvania State University, also notes that other states and plaintiffs have gotten the message: cases like this could go to trial and pose serious financial risks for Meta in the future.

— Moreover, this precedent could affect the entire social media industry: Art Hogan, chief market strategist at B Riley Wealth, told Reuters that such cases could deal a “devastating blow to the social media industry,” as companies would have to make sweeping changes to their algorithms, which would raise serious questions about the security of social media platforms as a whole.

This article was AI-translated and verified by a human editor