Investors are keeping an eye on the start of arguments in Metaplatform’s child privacy case, which begins on Tuesday. A group of 29 states has filed a lawsuit against the parent companies of Facebook and Instagram, alleging that Meta violates federal child privacy laws and various consumer protection laws and promotes addiction among teens and children. Meta’s lawyers have said the company could be awarded up to $1.4 trillion in damages – close to Meta’s total stock market value – but lawyers for the states told a judge last week that $200 billion was probably a more realistic figure. But even more important than potential financial penalties is the possibility that Meta will be forced to make back-end changes to its social media products, hurting its core advertising business. Algorithm changes “They’re talking about eliminating things like infinite scrolling (and) changing the algorithms. These are things that are important to how social media products work,” Gil Luria, head of technology research at DA Davidson, told CNBC. “Infinite scroll dramatically increases our ability to keep consumers on the app, (meaning) we can sell more ads,” JJ Kinahan, senior vice president at Cboe Global Markets, told CNBC on Tuesday.The options market is pricing in a $30 price move for Meta stock through the end of August, or about a 5% move. Option pricing through the end of September suggests a move of up to $55, or 10%. Meta stock was down about 3% in midday trading Tuesday. Meta 5D Mountain Meta 5 Day “As a retail trader, I would be cautious to take action (based on) all the twists and turns of the trial,” Mr Kinahan said. “Are you comfortable owning the stock now, even though you know it’s an expected move? That’s the question for me.” Paul Meeks, managing director at Freedom Capital Markets, thinks now is a good time to avoid shares in CEO Mark Zuckerberg’s company, given the pressure facing Meta from both legal issues and issues related to investing in artificial intelligence. “I would take a wait-and-see approach. There could be more pressure on the stock,” Meeks said Tuesday. “There are also questions about AI spending for potential ‘prosperity in vain’ purposes,” he said, adding that it is even more important than legal issues. Trading on headlines Still, Wall Street experts are prepared to trade on any headlines that come out of the trial. “Stay tuned to these headlines,” JPMorgan traders wrote in a desk note last week. “This is nothing.” Headlines that mention potential algorithm changes or product changes can cause stock price fluctuations during the trial period. “The question is whether some of the company’s activities will be significantly curtailed or prohibited in the future,” said Mike Ko, yieldmax strategist at Tidal Financial Group. “The economic impact could be greater than the amount of the settlement or judgment.” Former Justice Department Antitrust Director Jonathan Cantor said the relief sought by state attorneys could be transformative. “They are demanding that Meta delete the data it illegally obtained from children, as (the lawsuit) alleges, and also delete the models trained using that data,” Kanter said. “The significance of the remedies here could be very profound, both for this case and for future cases involving companies with AI frontier models.”
