Meta has agreed to pay up to $18 billion to settle a landmark lawsuit alleging its social media apps harm teenagers.
- Morningstar expects only a marginal hit to teen usage and little revenue impact from the new restrictions from proposed changes to Meta’s apps.
- The $18 billion deal covers 48 states and four U.S. jurisdictions, with payments spread over a decade.
- U.S. teens spend less than 30 minutes a day on Meta’s apps and make up under 10% of its U.S. user base, according to Morningstar.
Meta Platforms Inc. shares fell 0.3% in early premarket trading on Thursday, pulling back slightly after a strong run after the company reached a settlement in a major federal trial over social media’s impact on teenagers, with analysts arguing the outcome could clear the way for further gains in the stock.
In a report, Morningstar said the proposed settlement and platform tweaks Meta has committed to implementing in its social media apps are unlikely to meaningfully affect the company’s revenue or user engagement.
“We expect behavioral changes imposed on Meta to only marginally trim teen time spent on Meta’s properties… With a marginal reduction in time spent, we don’t see a large revenue impact,” the research said in its report.
Morningstar maintained its $850 price target on the Meta stock, which implies a 48% upside from the stock’s latest closing price. Meta shares have gained nearly 5% this week, adding to a broader rebound as investors weigh the company’s AO spending against its strong advertising business.
Meta’s Record Settlement
Meta on Wednesday agreed to an up to $18 billion settlement with 48 state attorneys general, ending the widely watched trial. As part of the settlement agreement, Meta will make sweeping changes to its services, Facebook and Instagram, including implementing a default two-hour time limit on its apps for users under 18.
The social media giant will pay 70% of the settlement upfront, with the remaining 30% contingent on TikTok and Alphabet-owned YouTube agreeing to one-hour daily limits for underage users and paying states roughly $5.3 billion each. The settlement covers 48 states and four U.S. jurisdictions, with payments spread over 10 years. The deal still requires the court’s approval.
Teen Not The Biggest Revenue Puller For Meta’s Apps
Morningstar noted that U.S. teens currently spend less than 30 minutes on average on Meta’s platforms, well below the proposed two-hour limit. Teenagers also account for less than 10% of Meta’s overall U.S. user base, while their contribution to revenue is even smaller.
The firm said the more important value of teen users is their lifetime value, which it expects to remain largely intact despite the new restrictions.
Previously, Piper Sandler called the settlement a “clear positive” for Meta, saying it removes a significant legal overhang with little impact on estimates. Evercore ISI called META a “highly compelling” stock opportunity as the settlement eases youth-safety concerns.
Wells Fargo analysts said the deal avoids worst-case financial outcomes but could weigh on teen engagement, particularly on Instagram, while BMO Capital analysts flagged risks to engagement, ad load and pricing.
Retail View On Meta
On Stocktwits, retail sentiment for META climbed over the recent days and was ‘bullish’ on Thursday.
“$META Cheap under 600. Settlement was and is a huge catalyst going forward. 650+ by the end of Sept 700+ rolling into Oct ER (earnings report). Cha Ching,” said a trader.
Year to date, META stock remains 12.6% lower.
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