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Meta Platforms (NASDAQ:META | META Price Prediction) stock is down 4% to $567.58, and it is down 10% year to date (YTD). The decline arrives on the eve of a bellwether child safety trial. Pinterest (NYSE:PINS) stock is down 4% to $23.15, and it is down 7% year to date. Snap (NYSE:SNAP) stock is down 3% to $5.25, and it is down 33% year to date.
The market is repricing legal risk across the social media sector. Both Pinterest and Snap are falling alongside Meta Platforms stock despite not being defendants in Tuesday’s trial.
Bellwether Youth Trial Opens Tuesday
A lawsuit filed by 29 states in 2023 goes to trial Tuesday in U.S. District Court for the Northern District of California in Oakland, before District Judge Yvonne Gonzalez Rogers. California, Colorado, Kentucky and New Jersey are taking part, and testimony is expected from Meta Platforms CEO Mark Zuckerberg and Instagram CEO Adam Mosseri. Plaintiffs claim the company “developed and refined a set of psychologically manipulative platform features designed to maximize young users’ time spent on its social media platforms,” including infinite scroll, autoplay and likes.
The states also allege the company knew its apps harmed users, including through increased instances of anxiety, depression and suicide, and separately allege violations of the Children’s Online Privacy Protection Act (COPPA).
Meta Platforms has said potential damages in the case could be as high as $1.4 trillion, against a market capitalization the company describes as about $1.5 trillion. That’s the company’s own characterization of its exposure, offered as context rather than as a court finding or award. A Meta Platforms spokesperson stated:
The State AGs may call this a landmark case, but their limited claims are unsubstantiated, and their financial demands are vastly disproportionate. The AGs offer no proof anyone in their states was misled, claim benign features like having an additional Instagram account somehow harmed their residents, and attempt to penalize Meta for industry-wide challenges like age verification. Rather than sticking to the facts or the law, the states have instead decided to chase an outlandish payout. We stand by our record of creating strong protections for teens, and look forward to making our case in court.
Earlier this month a New Mexico District Court ordered Meta Platforms to pay $567 million to address teen mental health in the state, plus $375 million in civil penalties. In March a jury found both Meta Platforms and YouTube negligent in a suit alleging their products drove a user’s dependency, anxiety, depression and self-harm after she began using the platforms at age 10, with $6 million in punitive and compensatory damages ordered. Thousands of similar cases are pending against social media companies in the U.S., and countries from Australia to Turkey have imposed laws restricting children’s use of these platforms.
Peer Stocks Reprice Alongside
Alphabet (NASDAQ:GOOGL) stock is down 0.5% to $344.13, though Alphabet shares are up 11% year to date. That much smaller move and positive YTD return stand apart from the social platforms, despite YouTube being a co-defendant in the March verdict.
The declines in Pinterest stock and Snap stock signal the market is repricing sector-wide regulatory and litigation risk.
In a secondary but nonetheless relevant news item, BlackRock (NYSE:BLK) stock is down 2% to $1,154.47, though BlackRock shares are up 11% year to date. The Financial Times reported Monday that a $14 billion data center project in El Paso, Texas faces potential insurance gaps, raising concerns about losses that may not be fully protected. The venture is developing a one-gigawatt campus, with BlackRock holding an 80% interest and Meta Platforms owning the remaining 20%.
Each company is expected to finance its portion of development costs. Insurance, arranged through Marsh, reportedly covers up to $218 million for certain construction delays and $645 million related to terrorism. During construction the project is expected to carry property protection up to $427 million, rising to $450 million once operational, with commercial liability capped at $50 million per event and in aggregate. This remains a reported risk on a project still under construction.
Meanwhile, the Communication Services Select Sector SPDR Fund (NYSEARCA:XLC) is down 2% to $110.82, and the ETF is down 3% year to date. The fund’s smaller decline shows how a diversified sector basket absorbs single-name legal risk relative to individual social platforms.
What to Watch
Investors can watch for whether Zuckerberg and Mosseri testify as expected, how the bellwether verdict lands and what it signals for pending cases against social media companies, and whether additional states join or settle. A bellwether outcome can set terms for follow-on litigation, which is why peer stocks are moving even without direct exposure to Tuesday’s case.
Traders may also want to monitor for any revision to insurance arrangements on the El Paso project and further disclosures from Meta Platforms or BlackRock on the venture. A cautious position size is reasonable given legal uncertainty layered on top of an already volatile setup for Meta Platforms stock.
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