StockTok: Meta to pay $1.4B in Texas data privacy settlement

Welcome to “StockTok,” The Fly’s weekly recap of Wall Street’s reactions to social media stock news.

DRUG MARKETING: Meta Platforms (META) is running ads on Facebook and Instagram to steer users to online marketplaces for illegal drugs, months after The Wall Street Journal noted the company was facing a federal investigation over the practice, Salvador Rodriquez of The Wall Street Journal reported. In July, the Journal found dozens of ads marketing illegal substances, such as cocaine and prescription opioids.

ON SECOND THOUGHT: Meta has scrapped its celebrity AI chatbot feature less than a year after launch and now expects people to use Meta’s new AI Studio to customize their own AI avatars, The Information’s Kaya Yurieff, Sylvia Varnham O’Regan and Kalley Huang wrote. According to the report, the celebrity AI chatbot feature fell flat with users.

ANOTHER ONE BYTES THE DUST: The House’s cybersecurity operation plans to initiate the block and removal of all ByteDance products from all House-managed devices and app stores, Politico’s Katherine Tully-McManus reported, citing a notice sent to House staffers Tuesday. The process will begin August 15, Tully-McManus wrote. The House Administration Committee previously authorized the removal TikTok from House devices, but this latest purge will include apps such as Capcut, Lemon8, Lark and Hypic.

PRIVACY SETTLEMENT: Texas Attorney General Ken Paxton has announced a $1.4B settlement with Meta to stop the company’s practice of capturing and using the personal biometric data of millions of Texans without the authorization required by law. “This settlement is the largest ever obtained from an action brought by a single State. Further, this is the largest privacy settlement an Attorney General has ever obtained, dwarfing the $390 million settlement a group of 40 states obtained in late 2022 from Google. This is the first lawsuit brought and first settlement obtained under Texas’s ‘Capture or Use of Biometric Identifier’ Act and serves as a warning to any companies engaged in practices that violate Texans’ privacy rights,” the AG stated. “After vigorously pursuing justice for our citizens whose privacy rights were violated by Meta’s use of facial recognition software, I’m proud to announce that we have reached the largest settlement ever obtained from an action brought by a single State,” said Attorney General Paxton. “This historic settlement demonstrates our commitment to standing up to the world’s biggest technology companies and holding them accountable for breaking the law and violating Texans’ privacy rights. Any abuse of Texans’ sensitive data will be met with the full force of the law.”

POPULAR DEMAND: A group of 17 U.S. lawmakers have asked Meta to delay shutting down CrowdTangle for at least six months, saying that Meta Content Library has “significant limitations,” Sara Fisher of Axios reported. Researchers, journalists and others use CrowdTangle to measure what’s trending on Facebook and Instagram, and the lawmakers are arguing that Meta has a responsibility to be transparent about the content being shared on its platform ahead of the 2024 election, Fischer said. The lawmakers are giving Meta until August 12 to answer questions about its plans to shut down CrowdTangle, including whether it will delay shutting down the tool for at least six months while it makes changes to the functionality and access of its new content library.

100M MILESTONE: As of this month, WhatsApp now has 100M users in the United States, the company owned by Meta announced in a blog post. “This milestone has been a long time coming and it proves that WhatsApp is the solution to the cross platform divide in America. No matter if you have an iPhone or Android, people want private and secure messaging that works well for everyone and that’s what we do best. Whether you’re trying to organize your college groups on campus, keep up with your extended family, or bring together an entire community – we’re grateful to all of you for using WhatsApp. We can’t wait to keep bringing you great new features in the months ahead,” the company added.

MESSAGE RECEIVED: EssilorLuxottica (ESLOY) CEO Francesco Milleri said on a call with analysts that his company has been informed of Meta Platforms’ intention to acquire a stake, Bloomberg reported.

ANTITRUST FINE LOOMS: The EU is set to hit Meta with the first antitrust fine for tying its Marketplace classified advertisements service with Facebook, Reuters’ Foo Yun Chee noted, citing people with direct knowledge of the matter. Meta could face a fine of as much as $13.4B, or 10% of its 2023 global revenue, according to the report. The Commission will likely issue its decision in September or October before EU antitrust chief Margrethe Vestager leaves office in November, the people say. “The claims made by the European Commission are without foundation. We continue to work constructively with regulatory authorities to demonstrate that our product innovation is pro-consumer and pro-competitive,” Meta spokesperson Matt Pollard said.

SCRAM SCAMMERS: Across the Middle East, social media influencers are being targeted by scammers, who flag their content for copyright issues then ask for money to restore the content, Tekendra Parmar of Bloomberg said. These scammers are utilizing tools offered by Meta to help content owners automatically identify violating content so it can be pulled from platforms.

Separately, Meta said in a blog post that it has removed around 63,000 Instagram accounts in Nigeria attempting to target people with financial sextortion scams, including a coordinated network of around 2,500 accounts. It said it has also removed a set of Facebook accounts, Pages and Groups “run by Yahoo Boys – banned under our Dangerous Organizations and Individuals policy – that were attempting to organize, recruit and train new scammers.” Meta noted that “While our investigation showed that the majority of these scammers’ attempts were unsuccessful and mostly targeted adults, we did see some also attempt to target minors, and we’ve reported those accounts to the National Center for Missing and Exploited Children.” Finally, the company said that it removed around 7,200 assets, including 1,300 Facebook accounts, 200 Facebook Pages and 5,700 Facebook Groups, also based in Nigeria, that were providing tips for conducting scams.

EARNINGS PREVIEW/RECAP: Meta is scheduled to report second quarter results after market close with a conference call scheduled for 5 pm ET. Last quarter, Meta Platforms reported earnings of $4.71 per share on revenue of $36.46B, both of which beat consensus forecasts. Mark Zuckerberg, Meta founder and CEO, said at the time: “It’s been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world’s leading AI. We’re seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

Pinterest (PINS) kicked off earnings for the sector yesterday, falling over 10% despite beating expectations in Q2. The company did however provide Q3 revenue outlook that fell short of analyst consensus. Global monthly active users increased 12% year over year to 522M. “We had another impressive quarter, reporting a 21% increase in revenue and 12% growth in monthly active users globally,” said Bill Ready, CEO of Pinterest. “Our monetization efforts are paying off. Advertisers are seeing improved performance across key objectives on Pinterest – from brand awareness to conversion – as we continue to roll out AI-powered products and experiences. As a result, we’re gaining share of advertising budgets with some of the world’s largest brands. I’m proud of our pace of innovation as we execute against the opportunity ahead.” Wells Fargo lowered the firm’s price target on Pinterest to $41 from $49 and maintained an Overweight rating on the shares. More expectations miss than macro impact, despite return of some food and beverage ad weakness, the firm said. Wells believes Pinterest shares are pricing in further macro weakness and noted that while Meta EPS print and guide are critical to sector, it leans tactically constructive here. Evercore ISI lowered its price target on Pinterest to $48 from $50 and kept an Outperform rating on the shares. The firm “modestly” lowers estimates in the wake of what it calls a “Modest Beat & Lower Q2” earnings report, but believes the after-hours pullback was “an expectations and not a fundamentals correction.” The firm views the valuation as “compelling and would be buyers of this correction,” the analyst told investors.

ADDITIONAL ANALYST COMMENTARY: Citi decreased its price target on Pinterest to $44 from $51 and reaffirmed a Buy rating on the shares. The firm contends that although the company’s Q3 guidance came in lower than expected on continued Food and Beverage vertical weakness and currency, given engagement growth, adoption of newer ad tools, and margin expansion, it believes Pinterest remains well positioned to capture a greater share of the broader online advertising market. The analyst recommends taking advantage of any dislocation in the shares post the Q2 report.

Roth MKM elevated the firm’s price target on Reddit (RDDT) to $67 from $61 and backed a Buy rating on the shares ahead of its Q2 results on August 6. The firm is raising its estimates to include contribution from the recently announced OpenAI deal but also warns that shares could come under pressure as IPO lockups expire on August 9, the analyst tells investors in a research note.

Noting that Meta last week provided an update on its AI progress and the company’s role in the broader ecosystem, along with the release of Llama 3.1 and expansion of Meta AI, JPMorgan called these announcements “encouraging,” noting Llama 3.1 is the largest open-source model and management expects Meta AI to become the most used AI assistant by year-end, if not sooner. The firm, which added that it believes investors are bracing for further potential increases to capex for 2024 and 2025 given the heavy level of AI-associated capex intensity, maintains an Overweight rating on Meta shares.