Social-Media Companies Face Regulatory Risk in California for Harming Children
Comment of the Day

June 29 2022

Commentary by Eoin Treacy

Social-Media Companies Face Regulatory Risk in California for Harming Children

This note may be of interest to subscribers. Here is a section:

A bill passed Tuesday by California's Senate Judiciary Committee could allow government attorneys in the state to sue social-media companies such as Meta Platforms, TikTok and Snap for the use of any design or feature that would cause children to become addicted to their platforms. This could have implications for these companies' regulatory and legal risk-management profile as they would have to pay a civil penalty of up to $25,000 per violation or up to $250,000 for a knowing and willful violation. Some 90% of teens aged 13 to 17 in the U.S have used social media, according to The American Academy of Child and Adolescent Psychiatry, which estimates that, on average, they are online almost nine hours a day, not including time for homework.

Eoin Treacy's view

The user interface for social media apps is heavily curated to ensure it is addictive. That’s equally applicable to both adults and children. Therefore, it is reasonable to think there are going to be a large number of lawyers salivating at the chance to attack cash rich companies.

This is a difficult environment for investors. On paper Meta Platforms is a no brainer. The company has not issued new shares since 2013, revenues have grown from $5 billion to $119, the estimated P/E of 14 is undemanding. The company generates $39 billion in free cashflow, has $43.8 in cash and very low debt. The price has dropped 58% since November and is still trending lower.

The reason for that underperformance is Meta captured successive generations attention; first with Facebook, then with Instagram and WhatsApp. TikTok beat it to the punch with the current generation and Roblox is trying to muscle in on the one after that.  Meanwhile the tide of consumer sentiment appears to be turning. Social Media is going to have a much more difficult time thriving in future and the share is being marked down accordingly.   

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