Shares in Snap (SNAP), the parent company of Snapchat, fell early Thursday after the European Commission launched an investigation into the multimedia messaging app’s child protection policy.
Claim 30% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
EU Investigates Child Grooming, Illegal Products
“Snapchat may have breached the EU Digital Services Act (DSA) by exposing minors to grooming attempts and recruitment for criminal purposes,” the EU executive arm noted in a statement. The watchdog further alleged that the social media company may have exposed children to online information about age-restricted products such as drugs, vapes, and alcohol.
The DSA, which came into force in November 2022 and became applicable to very large online platforms in the subsequent year, requires these services to establish measures to stem the tide of illegal and harmful content. These platforms risk fines as high as 6% of their global yearly sales for violation of rules under the Act.
The launch of the investigation comes months after the commission started to quiz Snapchat alongside Apple (AAPL) and Alphabet (GOOGL) over their measures to protect children from online harm.
As part of the new probe, the commission plans to also query Snapchat about its age verification, noting that the platform likely relies on insufficient age self-declaration to verify its users — users are required to be at least 13 years old. The regulator also believes that certain default account settings on Snapchat will not provide sufficient privacy and safety protection to minors.
Social Media Platforms Face Scrutiny
The launch of the Snapchat investigation comes a day after rival platform providers Meta (META) and Alphabet’s (GOOGL) YouTube were found also culpable by a jury in a landmark child exploitation suit instigated by the U.S. state of New Mexico. Meta was fined $375 million for failing to shield minors on its platforms against sexually explicit materials as well as solicitation and human trafficking.
Meanwhile, Australia’s recent ban on the use of social media by underage persons is pushing regulators across the world to also consider tougher rules. The UK internet watchdog earlier this month gave Snapchat and other social media companies until April 30 to show how they enforce stricter age verification for users of their platforms.
Is Snap a Good Stock to Buy?
On Wall Street, analysts remain largely bearish on Snap’s shares and have a Hold consensus rating on the stock. This is based on three Buys, 20 Holds, and two Sells issued over the past three months.
However, the average SNAP price target of $7.90 implies about 76% upside from current trading levels.
