Upgrading Our Meta Rating as Settlement News Removes Overhang

In our opening comments we discussed reports Meta (META) was in settlement talks with state attorney generals in a teen social media addiction case, but now headlines are hitting that Meta has settled with a coalition of state AGs. Per those reports, Meta agreed to pay a maximum of $17.1 billion to resolve claims brought by states, which is a far, far smaller figure than those banded about in the financial press. We are also hearing reports that figure will be paid over multiple years, lessening the risk of a near-term cash crunch.

The settlement also reveals that Meta has agreed to make changes for teenage users of Facebook and Instagram nationwide, including daily usage limits and nighttime blocks. It also includes “enhanced age assurance measures” that would prevent children from using the apps, and making additional tools for parents and guardians.

We will have more comments to share as we get our hands on the court filing, but the initial reaction is lifting the shares, which makes sense given the removal of a large overhang and potential financial risk to the company. That is leading us to upgrade META shares to a Two rating from Three.

As it relates to our new Two rating, we see multiple layers of resistance ahead for the shares between $593 and $623. In our view, to break through those resistance levels, we’ll need to hear more about that teased cloud compute business and other initiatives. We continue to see Meta well positioned as it aims to further monetize its various platforms, especially ahead of the mid-term elections that are driving record levels of political ad spending.

For now, we’ll let the market digest today’s developments and see where the shares settle out. Based on that, we’ll be able to pinpoint potential pickup points for the shares.

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At the time of publication, TheStreet Pro Portfolio was long META shares.