Why Meta Platforms Stock Crashed Today
Key Points
Meta Platforms' latest child safety trial kicks off today.
Investors are concerned that the outcome could dramatically reshape the social media landscape.
A previous case didn't go Meta's way.
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Shares of Meta Platforms (NASDAQ: META) traded sharply lower Tuesday morning, falling as much as 4.1%. As of 1:10 p.m. ET, the stock was still down 3.3%.
The catalyst that sent the social media titan lower was the start of the company's latest child safety trial.
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Harmful to kids?
A court case with significant implications kicked off today in U.S. District Court for the Northern District of California. The attorneys general from California, Colorado, New Jersey, and Kentucky brought suit alleging that Meta designed its social media platforms to be addictive, contributing to a rising mental health crisis among younger users. The case also alleges that Meta collects data from children under 13 without first obtaining parental consent. In all, 29 states have filed suit against the social media platform. The remaining 25 states will go to trial later.
The verdict in this case could conceivably change the way social media companies do business. The states are said to be seeking damages of $200 billion or more, though Meta suggests the states are looking for damages totaling $1.4 trillion -- the size of the company's market cap. Experts say a judgment of that magnitude is extremely unlikely.
Earlier this year, a New Mexico jury found Meta's platforms were harmful to the mental health of children. The company was fined $375 million, but the judge later imposed an additional $567 million fine. Meta has since announced it tends to appeal. The outcome opened the floodgates for thousands of additional trials. Some are calling this social media's "big tobacco moment."
While the trial is scheduled to take between six and eight weeks, the verdict will likely be only the beginning, as the case winds its way through what will surely be a lengthy appeals process. Moreover, Meta claims the state attorneys general have failed to substantiate their claims and "their financial demands are vastly disproportionate."
There will be much more to come in the weeks and months that follow. Investors should keep an eye on the proceedings.
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Danny Vena, CPA has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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