Latest / Bloomberg Intelligence / Meta Sees Trillion-Dollar Threat in Social Media Trial

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Meta Sees Trillion-Dollar Threat in Social Media Trial · Bloomberg Intelligence

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  Speaker 2: One of the stocks that I followed for much of
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  Speaker 2: my career has been Facebook slash Meta. This is a
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  Speaker 2: stock I think potentially is facing an exidential crisis here.
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  Speaker 2: Meta Platforms is facing a jury trial and federal court
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  Speaker 2: overclaims that it deliberately designed Facebook and Instagram to encourage
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  Speaker 2: compulsive use among young users. Is it impacting the stock,
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  Speaker 2: I don't know. It's down three percent today, it's down
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  Speaker 2: sixteen percent this year, and it's down twenty eight percent
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  Speaker 2: of the trailing twelve months. So you can figure that out.
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  Speaker 2: Only one person to talk to, and you really want
• 0:57
  Speaker 2: to dig in deep to Facebook. That's David Kirkpatrick, the
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  Speaker 2: founder of Techomedy. He is also the author of The
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  Speaker 2: Facebook Effect, The Inside Story of the company that is
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  Speaker 2: connecting the World. This was published in twenty ten when
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  Speaker 2: we didn't know anything about Facebook or this whole social
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  Speaker 2: media stuff. So it really is a foundational book on Facebook. David,
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  Speaker 2: thank you so much for joining us here. How are
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  Speaker 2: you framing out this trial and the potential risk to
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  Speaker 2: Meta here?
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  Speaker 3: Well, thank you and great to be with you. Whether
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  Speaker 3: or not it's existential is a question that I think
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  Speaker 3: it's hard to answer, and I probably would lean against
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  Speaker 3: thinking in those terms. But could it be a beginning
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  Speaker 3: of a process that could really require substantial design changes
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  Speaker 3: throughout Meta's family of products?
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  Speaker 4: Yes?
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  Speaker 3: Could those changes potentially impact revenue and ultimately profits, yes,
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  Speaker 3: So long term this could change the way the company operates.
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  Speaker 3: I doubt if the financial harms and the remedies that
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  Speaker 3: will be if even if Meta loses consistently, and these
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  Speaker 3: are a huge number of cases, so there could be
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  Speaker 3: a lot of money. Very few companies have the kind
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  Speaker 3: of money that Meta has. There's a lot of money
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  Speaker 3: they can come up with to pay off fines and judgments,
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  Speaker 3: and it may be multi billions. But is it going
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  Speaker 3: to kill the company? Not even close. But it should
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  Speaker 3: change many things about the way it operates because the
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  Speaker 3: trials are basically beginning to prove that they have made
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  Speaker 3: a series of very bad decisions.
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  Speaker 2: It's interesting this is a bipartisan issue I noticed that
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  Speaker 2: we have attorneys general from both Democratic and Republican states
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  Speaker 2: are suing together. One of the very few areas of
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  Speaker 2: bipartisanship out there that suggests that this runs pretty doesn't it?
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  Speaker 5: Well?
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  Speaker 3: It does, and these issues all center around harms to teens,
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  Speaker 3: and META has lost a major case in New Mexico
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  Speaker 3: where they're now been asked to pay close to a
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  Speaker 3: billion dollars in fines and other relief. They also lost
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  Speaker 3: a case in Los Angeles where one particular teen was
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  Speaker 3: able to prove that her mental health was severely harmed
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  Speaker 3: and they were ordered to pay I believe nine million.
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  Speaker 6: Which is small.
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  Speaker 3: But the case that's coming to trial beginning today is
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  Speaker 3: the consolidation of Believe It or Not thirty one hundred cases,
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  Speaker 3: and it includes cases brought by twenty nine state attorneys general,
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  Speaker 3: a very large number of school districts from around the country,
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  Speaker 3: a bunch of parents who alleged that their own children
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  Speaker 3: were harmed, as well as some Indian tribes and Native
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  Speaker 3: American tribes. And because they've lost in New Mexico and LA,
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  Speaker 3: if they lose in this case, which is not at
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  Speaker 3: all out of the question, it could then affect the
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  Speaker 3: either judgments or potential settlements of all thirty one hundred
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  Speaker 3: of those cases that are coming up in the wake
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  Speaker 3: of this, because it's meant to be what's called a
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  Speaker 3: Bellweather trial. The idea being that the outcome of this
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  Speaker 3: case could help the plaintiffs and the defendant to decide
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  Speaker 3: whether they should settle and on what basis. So maybe,
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  Speaker 3: you know, if Meta loses here, they would agree to
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  Speaker 3: settle a very large percentage of those thirty one hundred
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  Speaker 3: other cases. And in addition to this, there's about a
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  Speaker 3: thousand cases that are coming to trial in a California case.
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  Speaker 3: With the Los Angeles case was a sort of tip
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  Speaker 3: of the sphere of where sort of exemplary trials will
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  Speaker 3: occur that could affect the settlement or disposition of those
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  Speaker 3: thousand cases. So we have four thousand and plus suits
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  Speaker 3: against this company for harming teams. That's a serious problem.
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  Speaker 2: That is what is the companies saying about this this
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  Speaker 2: legal situation for themselves.
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  Speaker 3: Well, basically they feel that it's all unfair that the
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  Speaker 3: plaintiffs don't have standing to sue, that they've done a
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  Speaker 3: good job trying to solve these problems internally, which the
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  Speaker 3: evidence is likely to show is incorrect, and they have.
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  Speaker 3: You know, the problem has been historically that section two
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  Speaker 3: thirty of the Communications Decency Act, which is a nineteen
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  Speaker 3: nineties era law, basically exempts any kind of online service
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  Speaker 3: from liability for any content that's on their service. So cleverly,
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  Speaker 3: what's now happened and all these cases show is that
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  Speaker 3: the lawyers have figured out they don't want to focus
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  Speaker 3: on content at all. They're focusing on the design of
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  Speaker 3: the services. So they're saying, the algorithms make these services addictive,
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  Speaker 3: and so it doesn't no matter what the content is.
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  Speaker 3: The point being that Meta was negligent in the design
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  Speaker 3: of their services and did not pay attention to the
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  Speaker 3: impact that that had on teenage.
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  Speaker 4: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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  Speaker 2: Mandeep Seeing, Global head of research for Bloomberg Intelligence, what
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  Speaker 2: do you want to talk about today? I mean, I
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  Speaker 2: got a million things. How about that anthropic annualized revenue
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  Speaker 2: top sixty five billion dollars. I mean, what do you
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  Speaker 2: make of that? How do you put that into context?
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  Speaker 5: I mean, this company has grown revenue fourteen x, you know,
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  Speaker 5: or the space of the last twelve months, So clearly
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  Speaker 5: they have a lot going right for them. I mean
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  Speaker 5: the one thing I would put a caveat on here
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  Speaker 5: is we have seen open source models really narrow the gap.
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  Speaker 5: So even though Nthropics numbers look stellar here, I feel
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  Speaker 5: like everyone right now is looking to deploy AI but
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  Speaker 5: not use the frontier models. And we just saw some
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  Speaker 5: news around open ai cutting their prices for tokens, So
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  Speaker 5: it feels like now we are at a point where
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  Speaker 5: everyone wants to undercut each other to make sure they
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  Speaker 5: have the market share in terms of the frontier models.
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  Speaker 5: And that may be that kind of catalyst to slow
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  Speaker 5: things down for Entropic, But they've executed very well and
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  Speaker 5: the numbers are just a reflection of that.
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  Speaker 7: So you don't see that dynamic evident in the latest number, So.
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  Speaker 5: Do you no? I think so far the frontier models
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  Speaker 5: had a clear lead and people were willing to pay
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  Speaker 5: for the frontier models because.
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  Speaker 2: A frontchier model is like Claude chat GPT, Claude.
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  Speaker 5: Jet chatchipt over Gemini or the open source models because
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  Speaker 5: there was a clear gap and everyone was willing to
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  Speaker 5: pay whatever Anthropic was asking them to pay in terms
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  Speaker 5: of token pricing, they were willing to pay. But now
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  Speaker 5: with open source models closing that gap, and now there
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  Speaker 5: are a lot of routing companies that help you use
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  Speaker 5: the most appropriate model relevant to the query, so you
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  Speaker 5: don't end up using the most expensive model, but the
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  Speaker 5: model that is appropriate for the query that you have.
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  Speaker 7: Speaking of models that are appropriate, open ai is launching
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  Speaker 7: a chat GPT for teens, Yeah, which is a version
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  Speaker 7: of its chatbot aimed at children age thirteen to seventeen,
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  Speaker 7: encouraging safe usage and deeper learning.
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  Speaker 5: Is that possible, well, I mean all these models have
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  Speaker 5: problems with putting guardrails. That's why you know, MYTOS was
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  Speaker 5: never released to the public. The US government said they
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  Speaker 5: need to be approved before you know it was broadly released.
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  Speaker 5: And I feel like even now, whatever guardrails you have
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  Speaker 5: in place can be jailbroken, and you know, people can
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  Speaker 5: get around it, which is why these models have capabilities. Yeah,
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  Speaker 5: you can say this is more fourteens and We've put
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  Speaker 5: the guardrails around it, but I doubt it can be perfect.
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  Speaker 5: And you know, that's where these companies have to do
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  Speaker 5: the PRPCE in terms of making sure you know, they're
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  Speaker 5: not being misused.
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  Speaker 2: All right, Switching gears back thirty seconds left. I'm concerned
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  Speaker 2: for this social media trial for met oh yes, should
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  Speaker 2: it be?
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  Speaker 3: Yes?
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  Speaker 5: And more and more we are seeing every jurisdiction kind
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  Speaker 5: of either banning, you know, usage for under sixteen or
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  Speaker 5: that kind of demographic. And so from that perspective, these
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  Speaker 5: companies have a pr problem, but now it's really kind
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  Speaker 5: of getting reflected and all sorts of trials that they're
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  Speaker 5: going through.
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  Speaker 4: Stay with us. More from Bloomberg Intelligence coming up after this.
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  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
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  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
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• 10:19
  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 10:24
  Speaker 7: We're looking at market that is declining, the third straight
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  Speaker 7: day of losses for the S and P five hundred.
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  Speaker 7: It is still very much earning season. The retailers have
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  Speaker 7: just begun announcing and we got the latest results out
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  Speaker 7: of Home Depot. The stock is up by about one
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  Speaker 7: and a half percent this morning after its latest results
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  Speaker 7: of beat estimates, in a sign perhaps that spending on
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  Speaker 7: home improvement continues to hold up. Let's bring in Lindsay Dutch.
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  Speaker 7: She is our consumer hardlines senior analysts here at Bloomberg
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  Speaker 7: Intelligence to talk a little bit more about Home Depot
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  Speaker 7: and Lindsay, Home Depot has really put a lot of
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  Speaker 7: emphasis on the professional contractors and moving in that direction,
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  Speaker 7: counting on them for a lot of the growth. What
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  Speaker 7: did we learn from Home Depot this past quarter when
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  Speaker 7: it comes to professional contractors versus DIY homeowners.
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  Speaker 8: Hi Scarlett, Hi Paul, thanks for having me so. I
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  Speaker 8: think that the second quarter beat was really more on
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  Speaker 8: the consumer side than the pro side. But you're absolutely
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  Speaker 8: right that the pros are becoming a more and more
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  Speaker 8: important piece of the business for Home Depot. They want
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  Speaker 8: to sort of that customer better. They think that growth
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  Speaker 8: going forward is better. That is a seven hundred billion
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  Speaker 8: dollar addressable market, a huge market growing very quickly, so
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  Speaker 8: the pro remains important. Pro spending is solid. You know,
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  Speaker 8: they still have same expectations for SRS, which is an
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  Speaker 8: acquisition that they made you know, this year grow mid
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  Speaker 8: single digits organically, but two Q was really about the DIY.
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  Speaker 4: Consumer first half.
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  Speaker 2: I mean, that top line of five percent looks pretty
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  Speaker 2: good to me, and it looks like they're guidance I'm
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  Speaker 2: reading it right, it's looking for slower growth in the
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  Speaker 2: second half.
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  Speaker 4: What's what are they saying about that?
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  Speaker 8: Yeah, that's right. So the top line, you know, there's
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  Speaker 8: some acquisitions in there that's sort of helping that top
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  Speaker 8: line exceed organic growth. Same source sales though one point
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  Speaker 8: seven percent, the best in a couple of years. That
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  Speaker 8: was really driven. You know, Canada was strong, Mexico was strong,
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  Speaker 8: but the US even put up a one point three percent,
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  Speaker 8: and it seemed like, you know, some of their spring
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  Speaker 8: assortment did very well, big ticket items think grills, patio furniture,
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  Speaker 8: gardening items. It seems that they did pretty well in
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  Speaker 8: the quarter. Same sore sales were building. June stronger than May,
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  Speaker 8: July stronger than June. So pretty solid. But then there's
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  Speaker 8: a lot of caution, as you mentioned, Paul, when we
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  Speaker 8: look at the outlook, that back half looks like there
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  Speaker 8: could be, you know, a pullback, and I think there's
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  Speaker 8: some caution uncertainty about that consumer demand coming out of
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  Speaker 8: this spring summer season.
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  Speaker 7: Home People also has some I don't want to say
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  Speaker 7: leadership changes, but there's going to be there's some leadership
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  Speaker 7: disruption happening. Do you anticipate there to be any shift
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  Speaker 7: in its ability to execute what it has, you know,
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  Speaker 7: laid out as its strategy with the CEO Ted Decker
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  Speaker 7: taking some leave.
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  Speaker 8: Yeah, so it's temporary medical leave. The strategy is still
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  Speaker 8: in place, you know. Every the leadership team seems very
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  Speaker 8: focused on executing all of the goals that they laid
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  Speaker 8: out at a December investor day, and I expect them
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  Speaker 8: to continue along their path again, mostly focused on gaining
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  Speaker 8: shares with pros, but also being there for the consumer
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  Speaker 8: and really trying to drive growth even in a market
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  Speaker 8: where we have very low housing turnover and we just
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  Speaker 8: don't know when that the rebound in that housing market
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  Speaker 8: is going to come.
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  Speaker 4: Did you talk to us about terriffs?
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  Speaker 2: Because when I walk into a home depot, which is
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  Speaker 2: not very often by the way, because I might chuck
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  Speaker 2: you that I am not a handyman, I am shocked
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  Speaker 2: by like the amount of plywood.
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  Speaker 4: That have to stack up there.
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  Speaker 2: And whenever I see that now, I think of I'm
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  Speaker 2: guessing a lot of that comes from Canada and is
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  Speaker 2: that being tariff to Where are what's.
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  Speaker 4: Home people doing about tariff c stage? What do they sing?
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  Speaker 7: Yeah?
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  Speaker 8: So they they had filed a claim. We knew that
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  Speaker 8: ahead of earnings, you know, I think there there was
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  Speaker 8: some expectation that there would be some refunds in the quarter.
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  Speaker 8: They got refunds in late June. There cost of good
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  Speaker 8: scolds was dropped by six hundred and eighty five million dollars,
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  Speaker 8: you know, so significant benefit to profitability in the second quarter.
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  Speaker 8: There will be some benefit in the third quarter as well,
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  Speaker 8: though probably a little bit less than what we just saw.
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  Speaker 8: And then by fourth quarter that benefit is really gonna
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  Speaker 8: kind of roll off in terms of the refund, in
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  Speaker 8: terms of terwish generally, you know, costs are still rising
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  Speaker 8: going into the back half of the year, so by
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  Speaker 8: fourth quarter gross margins expected to be flat, and then
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  Speaker 8: we could start to see pressure again, you know, into
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  Speaker 8: next year, just due to those rising costs.
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  Speaker 7: Low's, which is a small or a competitor to Home Depot,
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  Speaker 7: those shares are up two point one percent. That company,
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  Speaker 7: of course is going to report earnings tomorrow before the
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  Speaker 7: opening bell. What do Home Depot's results spell out for Lows?
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  Speaker 7: I mean, is it going to be one for one
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  Speaker 7: where we see this kind of execution at Home Depot,
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  Speaker 7: we assume that Low's is going to do that as well.
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  Speaker 8: So I think there was definitely some encouraging signs coming
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  Speaker 8: out of the Home Depot results. You know, Lows had
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  Speaker 8: high expectations for the second quarter, also expecting sort of
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  Speaker 8: a sequential improvement from the first quarter, which is what
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  Speaker 8: Home Depot saw, and a lot of that was you know,
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  Speaker 8: baked into some of the spring and summer sales events
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  Speaker 8: that they have, you know, they kind of stand out
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  Speaker 8: and some of those bigger ticket items that did really well,
• 15:42
  Speaker 8: you know, according to Home Depot's results. So I think
• 15:44
  Speaker 8: there is some positive signals. You know that Low's a
• 15:48
  Speaker 8: can achieve the sequential acceleration in same store sales that
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  Speaker 8: they were expecting, and b that their sales events, you
• 15:56
  Speaker 8: know that was really matter to the quarter, you know,
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  Speaker 8: could prove successful if consumers were truly going out there
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  Speaker 8: and spending a little bit on the summer on bigger
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  Speaker 8: ticket items.
• 16:07
  Speaker 4: Stay with us. More from Bloomberg Intelligence coming up after this.
• 16:14
  Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live
• 16:18
  Speaker 1: weekdays at ten am Eastern on Apple, Cocklay and Android
• 16:21
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  Speaker 1: you get your podcasts, or watch us live on YouTube.
• 16:29
  Speaker 2: All right, let's switch gears to some stock ideas, some
• 16:32
  Speaker 2: investment ideas, some companies to watch, and for that return
• 16:36
  Speaker 2: to Tim Craik at Global Chief Content Officer for Bloomberg Intelligence.
• 16:39
  Speaker 2: He's based in London here and Tim, you guys have
• 16:43
  Speaker 2: had this Companies to watch series of research reports for.
• 16:47
  Speaker 4: Quite some time now.
• 16:48
  Speaker 2: Now you guys are turning your attention to ashpecific. Talk
• 16:52
  Speaker 2: to us about kind of how you put this list
• 16:55
  Speaker 2: together for companies in a fast growing part of the world,
• 16:58
  Speaker 2: Asia Pacific.
• 16:59
  Speaker 6: Yeah, for sure, Thanks for having me on as always,
• 17:03
  Speaker 6: so you're right, this is part of an ongoing series.
• 17:06
  Speaker 6: We do fifty companies to watch for the year ahead,
• 17:09
  Speaker 6: which is global, ten companies to watch each quarter. We'll
• 17:12
  Speaker 6: be coming back to you in another month or so
• 17:15
  Speaker 6: with that, which is also global. But Asia is gaining intrigue,
• 17:21
  Speaker 6: whether it's the Asian markets in Southeast Asia, or what's
• 17:26
  Speaker 6: going on in China or Japan, et cetera. And with
• 17:31
  Speaker 6: that in mind, there was an opportunity to think, well,
• 17:34
  Speaker 6: what's interesting for the rest of this half that's Asia specific.
• 17:38
  Speaker 6: And as always, we base these ideas off of our
• 17:43
  Speaker 6: focus ideas, which are companies where we've got a high
• 17:46
  Speaker 6: conviction fundamental view and we see catalysts ahead that can
• 17:51
  Speaker 6: bring the market around to what we think is likely
• 17:55
  Speaker 6: to happen. So that's really the crux of this. So
• 17:58
  Speaker 6: it's kind of.
• 17:58
  Speaker 2: Cool Ai has a theme here coming out of that
• 18:02
  Speaker 2: part of the world, Asia Pacific. Any TNT ideas kind
• 18:05
  Speaker 2: of hit your list.
• 18:07
  Speaker 4: Yeah, so there there are a couple.
• 18:09
  Speaker 6: One actually, interestingly on the negative side is z dot
• 18:16
  Speaker 6: Ai or Zippoo as it's called in China. Yeah, this
• 18:22
  Speaker 6: is a this is a cautious idea, and yeah, I
• 18:24
  Speaker 6: should have mentioned up front. You know, there's several of
• 18:26
  Speaker 6: these ideas that are on the cautionary side of things
• 18:30
  Speaker 6: as opposed to just being gung ho, you know positive.
• 18:33
  Speaker 6: And you know, the Chinese companies are gaining steam in
• 18:39
  Speaker 6: terms of UH speed and performance. You know, there's been
• 18:42
  Speaker 6: any number of recent announcements, one from you know, you'll
• 18:46
  Speaker 6: remember Moonshot with Kimny three that you know was was
• 18:50
  Speaker 6: you know, broaching the same competition, the same competitive dynamic
• 18:54
  Speaker 6: as some of the big US lll ms, zip Poo
• 18:58
  Speaker 6: has really good performance, but they're just beating each other
• 19:03
  Speaker 6: up on competition, and so it's almost like the better
• 19:06
  Speaker 6: they do and the more business they do, the higher
• 19:08
  Speaker 6: the call star. And we think that they're in a
• 19:12
  Speaker 6: profit spiral on an ongoing basis and it's really hard
• 19:15
  Speaker 6: to get out of it by the same token, you know.
• 19:18
  Speaker 6: The telecom business broadly speaking across Asia is doing well.
• 19:22
  Speaker 6: We've talked about Malaysia Telecom before as a as an
• 19:26
  Speaker 6: infrastructure build out play for AI. Star Hub is a
• 19:30
  Speaker 6: telecom company based in Singapore that is seeing better traffic
• 19:35
  Speaker 6: and they've had some competitive dynamics locally that we think
• 19:39
  Speaker 6: are calming down, so rice competition is getting better for them.
• 19:43
  Speaker 4: So there's a couple of.
• 19:46
  Speaker 6: TM team names. I'd also say also in Singapore, c
• 19:51
  Speaker 6: which is one of the big e commerce companies. It
• 19:54
  Speaker 6: actually trades in the US, so it's se you know,
• 19:57
  Speaker 6: on the New York Stock Exchange. They have their big
• 20:02
  Speaker 6: business is called Shoppy, which is one of the biggest
• 20:04
  Speaker 6: e commerce platforms in Asia and going back to your
• 20:09
  Speaker 6: old stomping grounds, Paul. This is all about advertising. They're
• 20:13
  Speaker 6: getting more and more advertising business coming through, which is
• 20:16
  Speaker 6: driving profits for SE which we think are underappreciated.
• 20:20
  Speaker 4: Got two automakers from Japan. What's the story there.
• 20:24
  Speaker 6: Yeah, that's kind of a strange thing to pick both
• 20:26
  Speaker 6: Toyota and Honda at the same time, but they got
• 20:32
  Speaker 6: they're very different dynamics. Honda gets more than forty percent
• 20:37
  Speaker 6: of their business in the US. They have made a
• 20:39
  Speaker 6: massive push to go EV and we know where that
• 20:44
  Speaker 6: dynamic stands, especially in the US market. Actually, also in Japan,
• 20:49
  Speaker 6: they're not big on evs. They're big on hybrids and
• 20:53
  Speaker 6: gasoline engines. So Honda is basically backpedaled big time, and
• 21:00
  Speaker 6: it's effectively a restructuring story, refocusing on their core hybrid
• 21:06
  Speaker 6: business and combustion engine along with a really big motorcycle business,
• 21:11
  Speaker 6: which you can appreciate that kind of is below the
• 21:15
  Speaker 6: radar street. Toyota has had a different strategy. It's their
• 21:19
  Speaker 6: sort of multi pathway. So in Japan it's hybrids, in
• 21:24
  Speaker 6: China it's evs. In the US and Europe it's both
• 21:28
  Speaker 6: and they've been really successful and we think there are
• 21:31
  Speaker 6: big product launches coming ahead will continue to drive growth.
• 21:34
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