Prediction: The Child Safety Trial Will Have Minimal Impact on Meta Platforms Stock in the Long Run. Here's Why
Key Points
Meta's apps may impact a child's development, but that doesn't mean it'll be easy to prove.
Without solid facts and evidence, it's unlikely for the ongoing social media trial to result in significant fines or changes.
Meta's stock may struggle, but it likely won't be due to the consequences of this trial.
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I've seen many people voice concerns about the child safety trial involving Meta Platforms (NASDAQ: META) and how it could wreak havoc on the business. Not only could it result in significant fines and changes to its processes, but it may end up crippling the stock along the way.
I don't agree with that. I'm not saying this as a fan or investor of the company. In fact, I believe it is facing significant challenges, but that's largely due to competition and its apps not being all that great. I don't, however, think that this trial will lead to the company's demise or even have a big impact on the social media stock. Here's why.
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It's going to be hard to win
I don't doubt for a second that social media is bad for kids and can hurt their development. But here's the problem: how do you prove that? While there may be no shortage of personal stories about how it may have impacted individual people, measuring the effects of social media on mental health -- in a quantifiable way -- is going to be challenging, to say the least.
Some people view this as the "big tobacco" moment for Meta and social media companies. But with tobacco, there's more of a direct path to its harms, showing that people develop illnesses that are linked to tobacco. Trying to prove that Meta Platforms and its apps are mainly responsible for the issues kids have with mental health isn't going to be easy to prove at all. And that would be necessary for it to result in significant changes and fines for the tech company.
At the very least, these issues could drag out for years.
Meta's stock is risky, but it's not because of the trial
Meta Platforms' stock has been falling this year. It's down 17% so far, and it may look cheap, trading at around 21 times its trailing earnings, but it's not a stock I'd buy simply because of its leadership. The company seems to always be chasing the latest tech hype, whether it's the metaverse or, now, artificial intelligence. I'm not convinced of its strategy or its ability to thrive amid increased competition, which is why I'd stay away from it.
While the ongoing social media trial may not cripple its business or result in devastating fines, that doesn't mean the stock is a safe or good buy.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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