Meta Stock Slides As Court Losses Bring 'Big Tobacco Moment' Comparisons

Meta Platforms (META) stock slid Thursday after back-to-back court rulings this week held the Facebook parent company liable for harm to young people. The results drew comparisons to legal pressure put on the tobacco industry decades earlier.

A Los Angeles jury late Wednesday found that Meta and YouTube contributed to the mental-health issues of a 20-year-old woman because of addictive features on their apps. A day earlier, a jury in New Mexico found that Meta had misled customers and exposed minors to harmful content.

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The jury awarded the Los Angeles woman $6 million in damages for Meta and YouTube-parent Google. The New Mexico jury ordered Meta to pay $375 million in civil penalties. But the bigger implication could be the precedent they set.

Internet giants say they are not liable for the third-party content posted to their platforms, citing Section 230 of the 1996 Communications Decency Act.

“For 30 years, Section 230 has protected major tech platforms for real-world harm caused by user-supplied content,” TD Cowen analyst Paul Gallant wrote to clients Thursday. “But in both cases this week, the trial judges let the case go to the jury. In L.A., it was because the lawsuit targeted ‘addictive design,’ not content. In New Mexico, the attorney general framed it as a violation of state consumer protection law (misleading parents).”

The biggest test for Section 230 will come this summer, Gallant added. A case brought by 30 state attorneys general in 2023 that accuses Meta’s products of harming children will go to trial in San Francisco.

“Unless Meta and Google are confident SCOTUS will eventually protect them, this week’s rulings (especially if replicated in San Francisco this summer) could lead Meta and Google to redesign their services for teens and explore financial settlements with other plaintiffs,” Gallant wrote.

Meta Stock Falls

A Meta spokesperson told the Wall Street Journal after Wednesday’s ruling that “teen mental health is profoundly complex and cannot be linked to a single app.”

The company will “continue to defend ourselves vigorously as every case is different, and we remain confident in our record of protecting teens online,” the statement continued.

On the stock market today, Meta stock is down more than 6% at 553.54. Google shares are down more than 2% at 284.61.

News that Cathie Wood’s ARK Invest fund sold more 3,500 Meta shares could also be putting pressure on the Facebook parent’s stock. Concern about the state of peace talks between the U.S. and Iran are also weighing on the stock market overall.

The slide for Meta deepens a slump that began late last year. Shares are down more than 25% from a record high of 796.25 last August. The biggest concern for Meta has been its rising AI investments and struggles to stand up an AI model that competes with OpenAI, Anthropic and Google.

Other social media stocks fell sharply Thursday as well. Reddit stock is down more than 8% at 127.17 in recent trades. Pinterest (PINS) fell 3% to 18.04.

Snapchat parent Snap (SNAP) is down 8% at 4.09, a record low. Snapchat is facing a separate investigation in Europe over its child safety policies, the New York Times reported Thursday.

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