Are the social media giants about to see a reckoning?
- Google and Meta have seen a defeat in an LA court
- Governments, schools and parents are lining up to sue
- It may not be a ‘tobacco moment’, but it is a serious problem for the technology giants
Anyone about to spend the Easter holidays attempting to prise their child away from their mobile phone will have cheered the verdict of a Los Angeles jury, who found Meta and Google intentionally built addictive social media platforms that harmed young people’s mental health.
At $6m, the fine was peanuts for these multi-trillion giants, but the question is whether it opens the floodgates for other claimants. Some market participants have worried that this is a ‘tobacco moment’ for the social media giants, where they face near-unlimited liabilities. The question for investors is whether this will dent their soaring share prices.
The sector has already shown signs of weakness. The CNBC Mag 7 index is down 12.11% for the year to date. That puts it behind the S&P 500 (-4.6%) and the MSCI World (-2.98%). Meta is down 12% for the year to date, while Google parent Alphabet is down 9%. For context, the FTSE 100 is up 4.5% over the same period.
However, it is difficult to disentangle the impact of the court case versus the broader sell-off in markets. It is plausible that the Magnificent Seven stocks have been used as a source of liquidity during difficult market conditions. Their star had been fading somewhat anyway, with investors worried over higher valuations and excessive capital spending in the sector.
Nevertheless, the court ruling is problematic for the technology giants. It paves the way for a range of other lawsuits from angry parents, schools and other interest groups who believe children have been harmed by these ‘attention economy’ apps. There have been other lawsuits – in the same week, a jury in New Mexico found Meta was liable for endangering children, exposing them to sexually explicit material and providing a conduit for sexual predators.
The science increasingly supports a link between social media sites and teenage mental health problems. It has been linked to an epidemic of anxiety. The case is sufficiently strong that governments are (belatedly) taking action, with Australia banning social media for under-16s and a pilot programme in the UK. China was far quicker to recognise the toxic impact of social media on children and to take action.
The apps will, of course, appeal. Meta said: "Teen mental health is profoundly complex and cannot be linked to a single app.” Equally, technology moves fast, and the social media sites may become a relic, home to a few boomers. However, the uncomfortable truth is that social media companies have grown fat by monetising the fragility of teenagers and, whatever the outcome of the law suits, it appears unlikely that these companies will simply be able to carry on as before. It could be a decisive moment for the technology giants.
