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Facebook’s business has boomed despite serious privacy scandals and intense congressional scrutiny over the years. A recent blockbuster settlement won’t cause the company to stumble, either.
Meta, Facebook’s parent company, reached a deal with a bipartisan group of state attorneys general to end a lawsuit that alleged Meta’s social media apps, Facebook and Instagram, were designed to be addictive and harmed teens’ mental health. Meta has agreed to pay $17 billion to the states and implement a long list of new policies aimed at protecting teen users.
The new restrictions for users under age 18 include more parental controls, stronger age verification, two-hour daily time limits and blackouts from midnight to 6 a.m. But the teen protections won’t hurt Meta’s underlying business.
"It obviously is something that puts to rest a big chunk of litigation that we face in this area," said C.J. Mahoney, Chief Legal Officer, in a conference call. In terms of the business impact, Mahoney said "we feel it's going to allow us to compete well in the market."
Teen users account for less than 1% of Meta’s revenue and average about one hour per day on Instagram, far less than the new two-hour limit. Meta is also pushing for competitors TikTok and YouTube to add the new restrictions, too, which would nix any competitive disadvantage Meta faces from being the only company with them. ($5 billion of the settlement payment is contingent on TikTok and YouTube adopting the same restrictions.)
"We expect behavioral changes imposed on Meta to only marginally trim teen time spent on Meta’s properties," writes Malik Ahmed Khan, an analyst at Morningstar, in a recent research note. "The real value in teen users is their lifetime value, which is maintained in this settlement."
Plus, Meta avoids legal penalties that could have been far higher. "The settlement would lift a large legal overhang on Meta’s stock, with prior reports of legal liabilities materially higher than the proposed $17 billion," according to Khan.
Going forward, future lawsuits and potential federal regulations are unlikely to take a major bite out of Meta’s sales and profits. But other pressing risks linger. Reaching a healthy return on investment for Meta’s exorbitant spending on artificial intelligence will be incredibly tough. Competition from TikTok, YouTube and other media apps is getting more intense. And CEO Mark Zuckerberg’s vision of turning the company into a hub of personal superintelligence is a major bet with unclear prospects.
Meanwhile, advocates continue to push for more guardrails. The next fight will be over how teens use AI, as the settlement does not cover Meta AI, the company’s chatbot.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
