It’s earnings season once again, and now it’s Big Tech’s turn to show what they did and didn’t achieve in the third quarter. Social media titans are in the spotlight today, with Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) showing some cracks in the foundation but Snap (NYSE:SNAP) holding up fairly well.
Later today, all eyes will be on Meta Platforms (NASDAQ:META) as the social media giant reports its quarterly results. Undoubtedly, social media posters will be abuzz, and analysts will have a broad array of opinions about Meta’s obstacles and opportunities.
Yet, Meta Platforms, which owns Facebook, Instagram, WhatsApp, Reels and Threads, has a big problem it probably won’t discuss in its quarterly earnings release. However, it needs to be discussed, as it will likely send ripple effects throughout the social media landscape.
Consequently, investors in social media and technology stocks generally should pay close attention to the legal actions that could impact Meta Platforms for years to come.
Meta Platforms in regulators’ crosshairs
Sure, Meta Platforms’ quarterly revenue and income will be significant. However, since the company has a bipartisan group of U.S. state attorneys general on its back, it could face financial and reputational fallout for years.
Here’s the lowdown, courtesy of CNBC. A group of 42 attorneys general from 33 states are suing Meta Platforms. They allege that certain features on Facebook and Instagram are specifically engineered to keep children and teenagers addicted to these social media apps.
Additionally, the attorneys general claim that some Facebook and Instagram features, such as “likes” and photo filters, can negatively impact teenagers’ mental health. Specifically, they allege that such features may encourage social comparison or promote body dysmorphic disorder (a negative self-image).
Furthermore, the legal action goes beyond accusing Meta Platforms of getting kids and teens addicted and harming their self-image. It also accuses the company of violating the Children’s Online Privacy Protection Act (COPPA) by collecting the personal data of users under age 13 without parental consent.
New York Attorney General Letitia James has been particularly vocal in her criticism of Meta Platforms.
“Meta’s own internal research documents show its awareness that its products harm young users,” James asserted.
She further alleged that Meta Platforms “has known for years about these serious harms associated with young users’ time spent on its platforms.”
District of Columbia Attorney General Brian Schwalb chimed in with scathing commentary of his own.
“It should have been the practice of Meta to alert people that they were dealing with a dangerous, potentially addictive product before they started using it,” he declared.
Not the first multi-state action against Meta Platforms
As startling as this litigation is, it’s actually not the first time a coalition of attorneys general banded together to take action against Meta Platforms. In 2020, attorneys general from 48 U.S. states and territories accused the company of anti-competitive conduct after it acquired Instagram and WhatsApp.
At around the same time, the Federal Trade Commission (FTC) lodged a similar antitrust complaint against Meta. However, the company challenged these legal actions, and my research uncovered no evidence that they’ve been resolved.
Additionally, Meta Platforms settled a class-action lawsuit in 2022 by agreeing to pay $725 million. The lawsuit alleged that the company had improperly shared the personal information of 87 million Facebook users with consultancy firm Cambridge Analytica.
In other words, this isn’t Meta Platforms’ first time being in the crosshairs of lawmakers and regulators. Now the question is whether Meta will push back or settle as 42 attorneys general seek to protect kids and teenagers from the alleged harms of social media.
Waiting for the other shoe(s) to drop
Assuredly, these developments won’t just affect Meta Platforms and its shareholders. The company is part of the well-known “FAANG” and “Magnificent Seven” cohorts and one of the handful of Big Tech pillars that has propped up the market-cap-weighted Nasdaq and S&P 500 indexes in 2023.
Could Meta Platforms stock be the first pillar to crack in Q4? Alphabet stock is already under pressure today, but a one-two punch of disappointing earnings and regulatory scrutiny could weigh on Meta Platforms over the coming weeks and months.
Even if the company posts an earnings beat, this story is far from over. Alphabet and Snapchat shareholders, and tech-sector investors generally, will definitely want to keep tabs on Meta’s ongoing legal developments. We may be witnessing a seismic shift in the social media landscape — with unforeseen but profound implications for the American financial markets and economy.