Why Meta Platforms plunged on Tuesday

On a bad day for tech stocks, Meta did even worse on the back of a pair of negative headlines.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened?

Shares of Meta Platforms (NASDAQ: META) fell 5.2% on Tuesday, even greater than the broader Nasdaq Composite, which was down near 3%.

It appears as though every day brings another negative headline for Meta. Yesterday, there were two. First, The Conference Board's consumer confidence reading came in worse than expected, which doesn't bode well for Meta's ad revenue. Second, a Wall Street Journal article today highlighted a bill making its way through the California State Senate, which would potentially open Meta and other social media platforms to lawsuits over teen addiction.

So what?

On Tuesday, The Conference Board, a nonprofit business research group organization, showed consumer confidence dropping to the lowest reading since 2013, with a reading of 98.7, down from 103.2 in May and below expectations of 100. That worse-than-expected reading hit virtually all stocks that are sensitive to consumer spending. Although Meta doesn't sell a lot of discretionary items, with the exception of its virtual reality headsets, it does get 99% of its revenue from advertising. So, lower consumer spending could lead advertisers to pull back on ad spending, which would affect Meta.

In addition, the Wall Street Journal highlighted a new bill making its way through the California state legislature, which could theoretically open Meta up to hundreds of millions in fines -- although rivals TikTok and Snap would also be subject to the new law as well. The bill proposes that state, local, and city attorneys could sue social media companies, if these attorneys can prove the companies knowingly introduced features that would addict teens to their platforms. The bill is currently up for a vote in the state's Senate Judiciary Committee, and if passed, would then go through to a full vote in the state Senate.

It's unclear if the bill would pass, but social media companies are also working with California state lawmakers on features to prevent teen addiction, which they hope will be agreed on and implemented instead.

Now what?

Meta investors have faced a perfect storm of negativity ever since the whistleblower hearings on Capitol Hill last October. Since then, CEO Mark Zuckerberg introduced the company's metaverse ambitions, which investors are unsure about. Meanwhile, iOS Identifier for Advertisers changes have made a dent in Meta's ad growth, since those new privacy features have made Meta's ads less targeted. Now, with the Federal Reserve tightening financial conditions, fears over a recession are in the air. Meanwhile, this California bill has the potential to open the company to more potential financial penalties.

These are all the reasons Meta, the world's dominant social media platform, trades at a bargain basement 11.3 times earnings. I happen to think that's too cheap if taking a longer-term view. However, there are certainly lots of headwinds facing Meta investors today.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Billy Duberstein has positions in Meta Platforms, Inc. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Meta Platforms, Inc. The Motley Fool has a disclosure policy. The Motley Fool Australia has recommended Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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