Facebook parent Meta has reportedly lost over $310 billion in market capitalisation in March alone. This decline comes as legal risks and concerns about the company’s heavy spending on artificial intelligence (AI) weigh on investor confidence in the social media giant that owns Facebook, Instagram, and WhatsApp, a report claims.According to a Bloomberg report, Meta’s shares are down 19% this month, on pace for their worst monthly performance since October 2022. The downturn happened when Meta faced a disappointing revenue outlook, and CEO Mark Zuckerberg was asking investors to remain patient with the company’s spending on the metaverse. That bet has since been scaled back in favour of AI, but the anxiety over spending has only grown.The legal picture for the company has also darkened considerably. A jury in New Mexico recently found that Meta misled teenagers in the state about the safety of its social networks, and a separate trial held Meta and Alphabet liable in a case related to social media addiction. The company’s investors are now weighing whether social media companies could face the kind of long-term regulatory and liability pressure that hollowed out the tobacco industry, though many analysts say it is too early to draw that comparison.
What Meta investors said the company’s recent market value decline
In a statement with Bloomberg, Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder, which holds about $11 billion in assets and owns Meta shares, said, “I don’t necessarily see this as the same as tobacco, but stranger things have happened.”Ghriskey, who began his analyst career covering tobacco, stated that litigation risks are well known. “Some would say the only way to remove any negative impact of social media is if you shut the whole thing down. Obviously, that would just devastate the company,” he added.The tobacco comparison is “the persistent question we have gotten from investors” following the verdict, Evercore ISI analyst Mark Mahaney wrote in a note to clients. “Is this Meta’s Big Tobacco moment? In other words, is Meta uninvestible today? It’s possible, but we think unlikely,” he added.The report notes that investor sentiment toward the company has grown more cautious, with Meta’s shares falling after recent rulings and now down 33% from their peak, underperforming the Nasdaq 100 Index this year. This contrasts with January, when the stock rose 8.5% following a strong sales forecast linked to AI investments.The company’s AI spending has become a key concern among Meta investors. While revenue is expected to grow about 25% this year, free cash flow is projected to drop 83% to under $8 billion, from $46 billion in 2025. Capital expenditure is forecast to increase 77% to $123.5 billion this year and exceed $140 billion by 2027. The company is also reducing its workforce by several hundred roles during this period.Legal risks are expected to remain a drag on the stock for some time, with several social media cases scheduled for trial in California state courts this year, the report notes. Unless Meta and Alphabet are confident the Supreme Court will intervene, the rulings “could lead Meta and Google to redesign their services for teens and explore financial settlements with other plaintiffs,” TD Cowen analyst Paul Gallant wrote in a note to clients.Meta faces higher exposure to these risks than Google’s parent, Alphabet, because most of its revenue comes from advertising across its family of apps. Even so, analyst sentiment remains positive, with 72 out of 80 analysts tracked by Bloomberg rating the stock a buy and only one giving it a sell rating.Estimates have also been revised upward, with consensus forecasts for Meta’s 2027 earnings increasing by 2.4% and revenue estimates rising by 6.4% over the past three months. At the same time, a decline in the share price has brought its valuation to about 16 times expected earnings over the next 12 months, the lowest level since March 2023.For some investors, that valuation gap is enough to offset the other concerns. “So far the penalties have been small, and it can adopt new parameters to diminish the issues behind the suits, so I don’t see this as a tobacco-like overhang,” said Phil DeAngelo, a managing director at Focused Wealth Management, which oversees $2.3 billion in assets and holds Meta shares. “At the same time, Meta has gotten extremely attractive, and the acceleration in revenue shows that even though the level of spending is huge, it knows how to monetise the investments,” DeAngelo added.
