Shares of Meta Platforms (META +1.59%) rallied Thursday morning, gaining as much as 4.1%. As of 11:46 a.m. ET, the stock was still up 1.9%.
The catalyst that sent the social media and artificial intelligence (AI) specialist higher was news that the company had settled a high-profile court case.
Image source: The Motley Fool.
It could have been much worse
News broke Wednesday morning that Meta had reached a far-reaching legal settlement with 47 states, the District of Columbia (D.C.), and U.S. territories. The case involved allegations that the company had endangered children's mental health by purposefully making its social media platforms addictive. The suit also claimed Meta violated various consumer protection laws by collecting data from children under the age of 13.
Meta has agreed to pay up to $16.7 billion, to be divided among the various states and territories, with equal payments over the next 10 years. The company reached a separate settlement with Texas for up to $1 billion. Meta will also institute default safeguards to prevent minors from using the platform at night and mute notifications during school hours.
NASDAQ: META
Key Data Points
The potential outcome in the case could have been much worse for Meta, as some commentators suggested the maximum fine could have been as much as $1.4 trillion -- equaling the total amount of the company's market cap. Moreover, a previous case in New Mexico was decided against Meta, with the judge ordering the company to pay $567 million over charges that its social media platforms fueled a "current mental health crisis among New Mexico's youth."
The company generated revenue of $60.8 billion in the second quarter, so Meta is paying out roughly 25 days' worth of revenue. Looked at another way, the company has about 2.6 million shares outstanding, which works out to roughly $6.51 per share, just slightly more than Meta's Q2 profit of $6.18 per share.
The settlement of this high-profile case removes a big overhang from Meta's stock, which has languished in recent years. And at 22 times earnings, savvy investors can pick up shares at a discount.
