By Harshita Mary Varghese and Anhata Rooprai
March 26 (Reuters) – Meta Platforms shares dropped 7% on Thursday after two verdicts holding it liable for harm to young users sparked fears the social media giant may have to overhaul the design practices that have underpinned its sprawling advertising business.
While fines from the U.S. trials in New Mexico and Los Angeles totaled only a few hundred million dollars, experts and investors said the verdicts could open the company to a wave of litigation that sidesteps a federal law, which has long shielded online platforms from liability for user-generated content.
That playbook, of targeting platform design, could prove crucial in the thousands of lawsuits in the U.S. alleging that social media platforms have caused harm, potentially resulting in billions of dollars in fines and forcing changes that could shift investor sentiment towards the stocks, experts said.
The rulings add a new layer of uncertainty for Meta just as it bets tens of billions of dollars on AI, a move that has already unsettled some investors.
“These decisions don’t break the business model today, but they raise the range of outcomes around future cash flows and margin structure” Adam Sarhan, CEO of 50 Park Investments, said.
Meta investors were “repricing legal and regulatory risk after the recent verdicts,” he said.
Meta shares were trading near 10-month lows. Alphabet was down 2.8%, while Snapchat-parent Snap slumped 12.5%.
The legal battle is likely to be prolonged as both Meta and Google, also found liable in the trials, plan to appeal the verdicts.
The Los Angeles jury found Meta and Google liable on Wednesday for a young woman’s depression linked to alleged addiction to Instagram and YouTube, awarding $6 million in damages. In the New Mexico case, jurors ordered Meta to pay $375 million for misleading users about the safety of its platforms for children and enabling their exploitation.
Snap and TikTok were also defendants in the trial in California. Both settled with the plaintiff before it began.
Meta and other social media companies face more than 2,400 cases centralized before a single judge in California federal court over claims their platforms harmed the mental health of young users, with thousands more consolidated in California state court.
“Financially, multiple verdicts could total billions of dollars in damages and legal costs, especially if courts hold the company (Meta) liable for platform design rather than just user content,” said Ken Mahoney, CEO of Mahoney Asset Management.
(Reporting by Harshita Mary Varghese in Bengaluru; Editing by Shilpi Majumdar)
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