Meta investors take wins now, forget about later

Childlike mind. It’s been a big week for Meta Platforms boss Mark Zuckerberg. On Wednesday, he testified in a congressional committee hearing on the sexual exploitation of children on social-media platforms like Facebook and Instagram. The next day, he announced on a quarterly earnings call that the company would pay its first-ever dividend to shareholders. Excitement around artificial intelligence and a rebound in online advertising might be helping Meta’s stock extend last year’s 100%-plus rise. But tension with lawmakers suggests investors are underestimating bigger risks to come if Meta can’t prove its products are safe.

On Thursday the company announced it made $40.1 billion in revenue, a 25% jump from the same period last year and higher than analysts surveyed by LSEG expected. Zuckerberg touted the company’s progress on AI and the metaverse, areas he has suggested can benefit from technological synergies. The news helped send shares more than 14% higher after market close.

And yet Meta has looming problems, which the Senate hearing highlights. Last May, the US Federal Trade Commission filed its third official complaint over Meta's privacy policies in an enforcement order that seeks to bar the company from making money from children on its platform. In the hearing Wednesday, South Carolina’s Senator Lindsey Graham told Zuckerberg he had “blood on his hands” as a result of interactions minors have had on his platforms.

Investors’ nonchalance to this backlash – on Wednesday and over the past year – is rooted in some reality. Senators spent much of their prepared remarks deflecting their own responsibility back onto the CEOs who were testifying, which also included Linda Yaccarino from X and Shou Zi Chew from TikTok. That’s perhaps because congressional legislation on the topic in its current form, despite having bipartisan support, has not drummed up enough backing for Senate leader Chuck Schumer to bring to a vote. CEOs would be on solid ground in thinking that’s unlikely to happen soon. Indeed, Discord CEO Jason Citron was among the CEOs testifying who didn’t even show up of their own volition. Citron was compelled to attend the hearing thanks to a personal subpoena served by US marshals.

Yet risks linger, particularly for Zuckerberg. Among other issues, tech leaders have faced blowback over the idea that, if they go snooping for bad actors, user privacy might be compromised. That’s problematic for people who are meant to regulate the company as well as, importantly, those that own the stock. Users will leave the platform if they feel safety is compromised – be it their children’s or their own. Plus social media firms like Meta are meant to be at the cutting edge of technology. Suggesting that they can’t keep it clean is a poor reflection of their software prowess.

Further, this issue could soon become a political hot button, which will only get messier for Meta. It’s a bad look for either political party in an election year to exhibit dysfunction around such an important topic. That could make Meta a punching bag in the upcoming US presidential election, especially as suburban voters in key areas drill down on issues that relate to families. Rhetorical backlash against Meta could become politically expedient, and a new Washington guard might take a much harder line. Right now, Meta’s shareholders are acting as if there is no risk at all.