#SocialStocks: Complaint alleges Meta collected personal data from children

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

WORK AROUND: Attempting to circumvent the European Union’s privacy rules, Meta Platforms (META) has begun offering users a choice between paying a hefty monthly subscription for ad-free versions of Facebook and Instagram or agreeing to give up their privacy rights in exchange for free access to its social networks, Natasha Lomas of TechCrunch reported. This has recently been targeted with a complaint filed by noyb, a privacy rights group in Austria. The group said it is committed to fighting Meta’s ‘pay or okay’ tactic “up and down the courts” and argues the cost of the subscription is “way out of proportion.”

ARTIFICIAL INTELLIGENCE FRAMEWORK: A collective of over 18 countries, including the U.S., the U.K., and several others, has issued unified directives for the development of AI systems. This includes an emphasis on crafting systems that prioritize being “secure by design,” according to Reuters’ Raphael Satter and Diane Bartz. The collaborative agreement stresses that companies engaged in AI development and utilization must prioritize strategies that safeguard customers and the broader public against potential misuse. Jen Easterly, the director of the U.S. Cybersecurity and Infrastructure Security Agency, highlighted to Reuters the significance of this milestone, stating, “This is the first instance where we’ve seen a recognition that these capabilities should not solely focus on innovative features, rapid market deployment, or cost competitiveness.”

ZUCKERBERG SELLS: According to a regulatory filing, Meta revealed that CEO Mark sold $9.5M each, alongside chief product officer Christopher Cox selling 10,000 shares of common stock for $3.4M on November 20.

POTENTIAL COMPETIITION IN PUBLIC ARENA: Reddit is in discussions with potential investors for an initial public offering, Bloomberg’s Amy Or, Ryan Gould, Katie Roof, and Gillian Tan reported, citing people familiar with the matter. The company is considering a public listing as soon as the first quarter of 2024, and as recently as least year was working with Morgan Stanley (MS) and Goldman Sachs (GS) on a listing, the authors noted.

STICKING TO SOCIAL: ByteDance, the company behind TikTok, is planning to scale back its involvement in the mainstream gaming industry, signaling a shift away from its Nuverse gaming brand, Reuters’ Josh Ye wrote, citing individuals familiar with the situation. A spokesperson from ByteDance conveyed, “We regularly review our businesses and make adjustments to centre on long-term strategic growth areas. Following a recent review, we’ve made the difficult decision to restructure our gaming business.”

PROBLEMATIC ALGORITHM OR NEGLIGENCE?: The algorithm used by Instagram presents a “toxic” assortment of videos to adults who follow children, as outlined in The Wall Street Journal’s report by Jeff Horwitz and Katherine Blunt. The content delivered to test accounts by WSJ contained inappropriate footage of children, overtly sexual adult videos, and advertisements from prominent brands, the report highlighted. Separately, Meta received more than 1.1M reports of uses under the age of 13 on Instagram since early 2019 yet it “disabled only a fraction” of those accounts, The New York Times’ Natasha Singer noted, citing a newly unsealed legal complaint against the company brought by the attorneys general of 33 states. Meta “routinely continued to collect” children’s personal information, like their locations and email addresses, without parental permission, in violation of a federal children’s privacy law, according to the court filing. “Within the company, Meta’s actual knowledge that millions of Instagram users are under the age of 13 is an open secret that is routinely documented, rigorously analyzed and confirmed,” the complaint said, “and zealously protected from disclosure to the public.” Meta could face hundreds of millions of dollars, or more, in civil penalties should the states prove the allegations.

ANALYST COMMENTARY: New Street analyst Dan Salmon initiated coverage of Pinterest (PINS) with a Buy rating and $48 price target. The firm made Pinterest its new top SMID cap pick, saying near term adjusted EBITDA consensus estimates have upside and the company’s long term guidance is conservative. Most investors are focused on Pinterest’s new Amazon.com (AMZN) third party advertising partnership in the U.S. and the potential expansion to new partners and countries, the analyst tells investors in a research note. However, New Street believes the Street is overlooking the company’s’ structural leverage on sales expenses as thief party ad revenue grows as a percentage of overall revenue.

Piper Sandler raised the firm’s price target on Pinterest to $40 from $37 and kept an Overweight rating on the shares. Based on the firm’s proprietary data, pricing metrics suggest Direct Links continues to drive lower outbound cost per click and overall CPM. Piper estimates over 80% of PINS ads in November were Direct Links, which should offer better ROAS and encourage incremental spend. Further, the firm thinks Direct Links and other format improvements can set the stage for further revenue acceleration in 2024.