Meta Platforms stock dropped 4% Tuesday as a 29-state youth-harm trial opened in Oakland, with the company warning damages could reach $1.4 trillion. The selloff coincided with second-quarter costs rising 55% against 28% revenue growth, cutting free cash flow to $784 million from $8.55 billion a year earlier.
Meta Platforms fell 4% to $548.14 in Tuesday morning trading as a 29-state youth-harm trial opened in the U.S. District Court for the Northern District of California. Rivals moved the opposite way: Pinterest rose 3% to $23.75 and Snap gained 2% to $5.30, pointing to a company-specific problem rather than a sector-wide move.
Trial opens in Oakland
Judge Yvonne Gonzalez Rogers is presiding over the bellwether case, which stems from a suit 29 states filed against Meta in 2023, with California, Colorado, Kentucky and New Jersey participating. Testimony is expected from CEO Mark Zuckerberg and Instagram CEO Adam Mosseri. Plaintiffs claim Meta built platform features such as infinite scroll, autoplay and likes to maximize young users' time on the app, and allege violations of the Children's Online Privacy Protection Act.
Meta itself says the case could expose it to damages as high as $1.4 trillion, a figure state attorneys general dispute, against a company market capitalization of $1.5 trillion. A Meta spokesperson said, according to 24/7 Wall St: "their financial demands are vastly disproportionate." Recent verdicts add pressure — a New Mexico court ordered Meta to pay $567 million over teen mental health plus $375 million in civil penalties earlier this month.
Costs outpace revenue
Meta's cost structure is adding to the pressure. Second-quarter revenue grew 28% while costs and expenses rose 55%, and R&D spending jumped 67% to $21.66 billion on compensation, data centers, cloud services and AI token costs. The company also booked $2.4 billion in legal charges and $1.18 billion in severance, and free cash flow slid to $784 million from $8.55 billion a year earlier. Meta issued $25 billion of senior unsecured debt in May, taking long-term debt to $83.66 billion by the end of June.
Zuckerberg said AI is accelerating the core business, and Meta reported advertising revenue rose 27%, ad impressions grew 14%, and the average price per ad climbed 12%. Investor Steve Eisman discussed the shift on The Real Eisman Playbook, pointing to rising depreciation costs.
What to watch
Meta stock was already down 14% year to date through Monday's close, so some of the cost concern may already be priced in. The open questions now are how the Zuckerberg and Mosseri testimony lands and whether the $130 billion to $145 billion full-year capex guidance holds. Traders are also watching whether free cash flow recovers off the $784 million print.
Source: 24/7 Wall St.
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