Jim Cramer said Meta Platforms’ $18 billion settlement with attorneys general across the country over youth social media addiction lawsuits was a “huge victory” for the company. However, he added that the benefits of Wednesday’s deal with Meta were not properly reflected in the stock price. “Somehow we ended up talking about it being bad for the meta, which is insane,” Jim said at the investment club’s morning meeting. Club shares rose more than 4% immediately after the opening bell. The stock briefly reversed and fell 1.4%, which Jim called “ridiculous”, but it rose again in afternoon trading. Jim called the market’s reaction “misguided” and said the stock should rise even more on the news. He called the resolution a “really big breakthrough” for Meta, adding that Facebook and Instagram could have faced $200 billion in fines and years of litigation. The settlement halts a landmark federal case in California brought by a group of states including California, Colorado, Kentucky and New Jersey, and takes the company’s existential crisis off the table, Jim said. The agreement was reached with the AGs of 48 states, the District of Columbia, and three U.S. territories. Under the settlement, Meta agreed to implement child-friendly safety features, including default daily time limits on social media, enhanced parental monitoring tools, and “robust age-verification measures” to detect underage children on the platform. We will also eliminate push notifications during school hours on weekdays and strengthen controls to prevent harmful content from being displayed to children. Mehta also called on YouTube and TikTok, both owned by Google’s parent company Alphabet, to follow suit. Jim estimates that only about 1% of young users use Facebook and Instagram. This change should actually have a “greater impact” on YouTube and TikTok, given that younger age groups are spending more time on these platforms. “It’s easy to meet usage requirements for Meta, but not for TikTok or YouTube,” he said. Mehta outlined the financial details of the settlement, saying the participating parties will receive about 70% of the allocated payments, or $12.7 billion, over 10 years. The company said the remaining 30%, or $5.3 billion, would only be released if YouTube and TikTok “introduced a one-hour daily limit, night mode, and age verification measures” and agreed to pay a combined 30%. Jim acknowledged that part of Meta’s lackluster reaction on Wednesday may have stemmed from market talk that the company might need to start issuing stock to fund the settlement and major capital expenditures planned to keep pace in the artificial intelligence race. Other big tech companies, including Alphabet and Intel, are also going public to offset AI spending. Alphabet sold $85 billion worth of stock in June. Earlier this month, Intel sold $20 billion worth of stock. Meta is already in a deteriorating financial position, with free cash flow under pressure due to high levels of artificial intelligence-related spending. Jim said that for Meta, “a stock offering is on the horizon,” suggesting such a move would be bad for the stock price. Jim said Meta’s salvation is to launch a public cloud business and monetize its excess computing power by selling it to other companies. Meta “will have a lot of computing power,” he said, adding that the cloud launch should help restore confidence in the stock. Meta CEO Mark Zuckerberg acknowledged last month that the company is laying the groundwork for a cloud business. Despite the poor performance report, specific details are lacking. (Jim Cramer’s charitable trusts are long META, GOOGL, INTC. See here for a complete list of stocks.) As a subscriber to Jim Cramer’s CNBC Investment Club, you will receive trade alerts before Jim makes a trade. After Jim sends a trade alert, he waits 45 minutes before buying or selling stocks in his charitable trust’s portfolio. If Jim talks about a stock on CNBC TV, he will issue a trade alert and then wait 72 hours before executing the trade. The above investment club information is subject to our Terms of Use and Privacy Policy, along with our disclaimer. No fiduciary duties or obligations exist or arise from your receipt of information provided in connection with the Investment Club. No specific results or benefits are guaranteed.
