Meta Platforms May Have Escaped the Worst of a Landmark Teen-Safety Lawsuit. But the Ramifications Could Be Much Worse for Snap.
In what is being referred to as potentially social media’s “Big Tobacco moment,” Meta Platforms (META +2.47%) recently announced an agreement with 52 attorneys general under which the parent company of Facebook and Instagram will pay up to $18 billion over the next decade and significantly change its policies for teen users.
While the fine would be the largest consumer-protection settlement ever, excluding Big Tobacco, most Wall Street analysts and experts believe Meta avoided what could have been a vastly larger financial settlement.
But the ramifications from this landmark teen-safety lawsuit could be far worse for social media company Snap (SNAP +4.49%). Here’s why.
Image source: Getty Images.
What the Meta settlement means
Per the agreement, Meta will pay $12.7 billion to the participating states and U.S. territories in the lawsuit in annual installments over the next decade. The remaining $5.3 billion will be paid based on two conditions: Alphabet‘s YouTube and TikTok must apply some of the same changes that Meta is making for teens, and those companies must collectively pay a matching $5.3 billion.
Most analysts considered the agreement fairly benign because, before it was agreed to, the maximum damages Meta faced were supposedly as high as $1.4 trillion, with state attorneys general realistically targeting a figure somewhere in the $200 billion range.
Perhaps the more significant part of the case concerns the changes Meta agreed to make to its platform relating to teen usage. Meta plans to limit teen usage to two hours per day across its platforms, and this limit can only be turned off with a parent’s permission. Teens will also not be allowed to use Meta’s apps between midnight and 6 a.m., and, by default, notifications will be muted between 8 a.m. and 3 p.m., during school hours.
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Other changes include preventing teens from seeing the number of likes and reactions on their posts, and eliminating cosmetic surgery and extreme makeup filters.
Many questions remain about how effective these changes will be and how easily teens will be able to get around them. But it’s worth noting that Meta doesn’t generate significant revenue from teens. Meta CEO Mark Zuckerberg testified that teens account for only 1% of the company’s revenue and that Meta generates nearly all of its revenue from advertising.
I’m not sure that fully quantifies how much advertising revenue teen audiences actually generate for Meta’s social media platforms, but the consensus on Wall Street is that this is not an overly punitive outcome for Meta, at least compared to what it could have been.
Why it could be a bigger deal for Snap
Snap is nowhere near as big a company as Meta, with a market cap of roughly $9.4 billion as of this writing. Through the first six months of the year, Snap has generated about $3.1 billion of revenue.
But it also looks like Snap will soon face similar charges to the ones Meta just addressed.
Pennsylvania Attorney General Dave Sunday recently announced that the state is suing Snap for allegedly failing to be truthful with parents about the type of content teens were exposed to on Snapchat. Furthermore, the lawsuit accuses Snap of using addictive features to keep younger users engaged. The stock initially sank on the news.
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Snap is much more reliant on younger users than Meta. Back in April, a Pew Research report showed that teens were using Snapchat for messaging more frequently each day than TikTok or Instagram. Teens also reported posting more frequently on Snapchat than on other platforms.
A study from Harvard’s T.H. Chan School of Public Health conducted in 2022 and published in 2024 found that 41% of Snapchat’s overall revenue came from users under 18. That was the largest share of revenue from that age group among similar platforms such as TikTok, YouTube, and Instagram.
Snap already faces significant challenges. The stock is down nearly 80% since its 2017 IPO due to a lack of profitability, competition, an inability to grow high-quality customers, and shareholder dilution.
Investors may have anticipated that Snap could face fallout from similar issues to those that Meta is facing, but usage restrictions like those being implemented at Meta could be far more detrimental to Snap’s business and revenue.
