The settlement is due to be issued in instalments over a 10-year period, and Meta will recognise a $10bn legal expense alongside third-quarter results.
Alongside the payment, Meta has agreed to several youth safety measures, including daily limits and age verification. Around 30% ($5.3bn) of the settlement value is subject to YouTube and TikTok implementing similar measures.
The shares were broadly flat in early trading.
Our view
The $18bn settlement is a monster number by almost any measure, but it removes a layer of uncertainty. The final figure sits well below some pre-trial estimates, and payments are spread over a decade. Underneath the legal noise, the core business keeps delivering, with revenue beating expectations last quarter and margins broadly on track once one-off charges are stripped out.
Advertising remains Meta’s engine room, spanning Facebook, Instagram, WhatsApp and Threads. AI is improving content recommendations and ad targeting, lifting engagement, sales and returns for advertisers. That supports ad volumes and pricing, while reinforcing the value of Meta’s enormous user base.
The main concern remains the scale of investment. Full-year capital expenditure guidance now stands at $130-145bn, with only the bottom end moving higher. That was slightly reassuring, although consensus is still below both our numbers and the high end of guidance. Cash flow is strong, but it's going to be flexed, and more, to pay for this buildout.
The debate is shifting from whether AI helps the existing ad business to whether it can create meaningful new revenue. Management highlighted opportunities across business agents, subscriptions, consumer assistants, messaging, payments and wearables. Other revenue is growing quickly from a small base, but investors still lack the hard evidence needed to value these opportunities confidently.
Meta doesn’t need every initiative to succeed. A handful of meaningful winners could justify the investment, given its access to billions of consumers and millions of advertisers. But management needs to show product traction, explain how these services will make money and connect today’s spending with future returns.
Data centre investment remains focused on improving Meta’s own platforms, rather than building the external cloud business some had hoped for. Selling compute would boost cash flows and likely be well-received by investors. But Meta is choosing a more difficult path, focusing its compute inwards, on projects with potentially higher, more durable returns. We like the ambition and think this is exactly what a growth company should be doing.
All in, we are positive on Meta for two reasons. First, its earnings multiple, now at a decent discount to the wider market, looks to reflect all the risks while giving little credit to the potential benefits, a trend we think can reverse. Second, even at the current earnings multiple, simply delivering the expected earnings growth should provide a powerful tailwind.
The risks are equally clear. Investors need to take a more positive view of Meta’s investment plans for the earnings multiple to move higher, while the core business engine must keep firing. Neither is guaranteed.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Meta’s overall management of material ESG issues is average.
Meta’s dual class share structure continues to limit the influence of minority shareholders. The group also remains exposed to material regulatory and legal risks, particularly around data privacy, competition and platform safety.
The $18bn multistate settlement removes a major overhang from claims that Meta's platforms harm younger users and are addictive by design. Meta has denied wrongdoing but agreed to new teen protections, including daily time limits, nighttime blocks and stronger age assurance. Wider litigation hasn't gone away, and while we think any revenue impact will be limited, there is a risk that these product changes could weigh on engagement over time.
The author holds shares in Meta.
Meta key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.