Meta Sees Trillion-Dollar Threat in Social Media Trial

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1:56One of the stocks that I followed for much of my career has been Facebook slash Meta. This is a stock I think potentially is facing an existential crisis here. Meta Platforms is facing a jury trial in federal court over claims that it deliberately designed Facebook and Instagram to encourage compulsive use among young users. Is it impacting the stock? I don't know. It's down 3 % today. It's down 16 % this year, and it's down 28 % over the trailing 12 months. So you can figure that out. Only one person to talk to and who really want to dig in deep to Facebook, and that's David Kirkpatrick, the founder of Techomedy.

2:34He is also the author of The Facebook Effect, the inside story of the company that is connecting the world. This was published in 2010 when we didn't know anything about Facebook or this whole social media stuff. So it really is a foundational book on Facebook. David, thank you so much for joining us here. How are you framing out this trial and the potential risk to Meta here? Well, thank you, and great to be with you. Whether or not it's existential is a question that I think it's hard to answer. And I probably would lean against thinking in those terms. But could it be a beginning of a process that could really require substantial design changes throughout Metta's family of products?

3:24Yes. Could those changes potentially impact revenue and ultimately profits? Yes. So long term, this could change the way the company operates. I doubt if the financial harms and the remedies that will be if even if Meta loses consistently, and these are a huge number of cases, so there could be a lot of money. No, very few companies have the kind of money that Meta has. There's a lot of money they can come up with to pay off fines and judgments, and it may be multi billions. But is it going to kill the company? Not not even close. But it should change many things about the way it operates because the trials are basically beginning to prove that they have made a series of very bad decisions.

4:17It's interesting. It's this is a bipartisan issue. I noticed that we have attorneys general from both Democratic and Republican states are suing together. One of the very few areas of bipartisanship out there that suggests that this runs pretty deep, doesn't it? Well, it does. And these issues all center around harms to teens. And Meta has lost a major case in New Mexico where they're now been asked to pay close to a billion dollars in fines and other relief. They also lost a case in Los Angeles where one particular teen was able to prove that her mental health was severely harmed and they were ordered to pay, I believe, nine million, which is small.

5:02But the case that's coming to trial beginning today is the consolidation of, believe it or not, 3 ,100 cases. And it includes cases brought by 29 state attorneys general, a very large number of school districts from around the country, a bunch of parents who alleged that their own children were harmed, as well as some Indian tribes, Native American tribes. And because they've lost in New Mexico and L.A., if they lose in this case, which is not at all out of the question, it could then affect the either judgments or potential settlements of all 3 ,100 of those cases that are coming up in the wake of this.

5:48because it's meant to be what's called a bellwether trial. The idea being that the outcome of this case could help the plaintiffs and the defendant to decide whether they should settle and on what basis. So maybe if Metta loses here, they would agree to settle a very large percentage of those 3 ,100 other cases. And in addition to this, there's about 1 ,000 cases that are coming to trial in a California case that the Los Angeles case was a sort of tip of the spear of where sort of exemplary trials will occur that could affect the settlement or disposition of those thousand cases. So we have 4 ,000 plus suits against this company for harming teens.

6:36That's a serious problem. That is. What is the company's saying about this legal situation for themselves? Well, basically, they feel that it's all unfair, that the plaintiffs don't have standing to sue, that they've done a good job trying to solve these problems internally, which the evidence is likely to show is incorrect. and they have, you know, the problem has been historically that Section 230 of the Communications Decency Act, which is a 1990s era law, basically exempts any kind of online service from liability for any content that's on their service. So cleverly, what's now happened and all these cases show is that the lawyers have figured out they don't want to focus on content at all.

7:24They're focusing on the design of the services. So they're saying the algorithms make these services addictive. And so it doesn't matter what the content is. The point being that Meta was negligent in the design of their services and did not pay attention to the impact that that had on Teenage. Stay with us. More from Bloomberg Intelligence coming up after this. Looking for more investing options? Meet SIBO, the exchange that pioneered options trading. With exclusive trading products like VIX and SPX options, SIBO can help you trade in any market environment. There are risks associated with SIBO company products.

8:01Review the disclosures and disclaimers at SIBO.com slash US underscore disclaimers. Quick one before you jump back in. You're listening for ways to help teams move faster, make sharper decisions, and turn scattered context into work they can use. ChatGPT for Business can help. ChatGPT for Business gives teams a shared workspace with admin controls, permissions, and access to work and codecs in ChatGPT. This means your business can move from question to answer and code to rollout quicker. Join over 10 million business and enterprise users worldwide already using ChatGPT for work. Download the ChatGPT desktop app or contact sales to learn more.

8:39Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals. Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster with revenue agents and automations working around the clock. You'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. You're listening to the Bloomberg Intelligence Podcast.

9:15Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Van Deep Singh, Global Head of Research for Bloomberg Intelligence. What do you want to talk about today? I mean, I got a million things. How about that Anthropic annualized revenue top$65 billion? I mean, what do you make of that? How do you put that in a context? I mean, this company has grown revenue 14x, you know, over the space of the last 12 months. So clearly they have a lot going right for them. I mean, the one thing I would put a caveat on here is we have seen open source models really narrow the gap.

10:00So even though Anthropics numbers look stellar here, I feel like everyone right now is looking to deploy AI but not use the frontier models. And we just saw some news around OpenAI cutting their prices for tokens. So it feels like now we are at a point where everyone wants to undercut each other to make sure they have the market share in terms of the frontier models. And that may be that kind of catalyst to slow things down for Anthropic. But they've executed very well, and the numbers are just a reflection of that. So you don't see that dynamic evident in the latest numbers, though, do you? No.

10:48I think so far the frontier models had a clear lead, and people were willing to pay for the frontier models because... Frontier models like Claude ChatGPT? Claude ChatGPT over Gemini or the open source models, because there was a clear gap, And everyone was willing to pay whatever Anthropic was asking them to pay in terms of token pricing. They were willing to pay. But now with open source models closing that gap, and now there are a lot of routing companies that help you use the most appropriate model relevant to the query. So you don't end up using the most expensive model, but the model that is appropriate for the query that you have.

11:32Speaking of models that are appropriate, OpenAI is launching a chat GPT for teens, which is a version of its chatbot aimed at children aged 13 to 17, encouraging safe usage and deeper learning. Is that possible? Well, I mean, all these models have problems with putting guardrails. That's why, you know, Mythos was never released to the public. The U.S. government said they need to be approved before, you know, it was broadly released. And I feel like even now, whatever guardrails you have in place can be jailbroken. And, you know, people can get around it, which is why these models have capabilities.

12:13Yeah, you can say this is more for teens and we've put the guardrails around it. But I doubt it can be perfect. And, you know, that's where these companies have to do the PR piece in terms of making sure, you know, they're not being misused. All right. Switching gears, Bob. I got 30 seconds left. I'm concerned for this social media trial for Meta. Oh, yes. Should I be? Yes. And more and more, we are seeing every jurisdiction kind of either banning, you know, usage for under 16 or that kind of demographic. And so from that perspective, these companies have a PR problem. But now it's really kind of getting reflected in all sorts of trials that they're going through.

12:56Stay with us. More from Bloomberg Intelligence coming up after this. Quick one before you jump back in. You're listening for ways to help teams move faster, make sharper decisions, and turn scattered context into work they can use. ChatGPT for Business can help. ChatGPT for Business gives teams a shared workspace with admin controls, permissions, and access to work and codecs in ChatGPT. This means your business can move from question to answer and code to rollout quicker. Join over 10 million business and enterprise users worldwide already using ChatGPT for work. Download the ChatGPT desktop app or contact sales to learn more.

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15:11You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts. or watch us live on YouTube. We're looking at a market that is declining. The third straight day of losses for the S &P 500. It is still very much earnings season. The retailers have just begun announcing and we got the latest results out of Home Depot. The stock is up by about 1.5 % this morning after its latest results of beat estimates in a sign perhaps that spending on home improvement continues to hold up.

15:49Let's bring in Lindsay Dutch. She is our Consumer Hardlines Senior Analyst here at Bloomberg Intelligence to talk a little bit more about Home Depot. And, Lindsay, Home Depot has really put a lot of emphasis on the professional contractors and, you know, moving in that direction, counting on them for a lot of the growth. What did we learn from Home Depot this past quarter when it comes to professional contractors versus DIY homeowners? Hi, Scarlett. Hi, Paul. Thanks for having me. So I think that the second quarter beat was really more on the consumer side than the pro side, but you're absolutely right that the pros are becoming a more and more important piece of the business for Home Depot.

16:29They want to serve that customer better. They think that growth going forward is better. That is a$700 billion addressable market, a huge market growing very quickly. So the pro remains important. Pro spending is solid. They still have same expectations for SRS, which is an acquisition that they made. This year, grow mid-single digits organically. But 2Q was really about the DIY consumer. First half, I mean, that top line of 5 % looks pretty good to me. And it looks like their guidance, if I'm reading it right, is looking for a slower growth in the second half. What are they saying about that?

17:05Yeah, that's right. So the top line, you know, there's some acquisitions in there that's sort of helping that top line exceed organic growth. Same store sales, though, 1.7%, the best in a couple of years. that was really driven. You know, Canada was strong, Mexico was strong, but the U.S. even put up a 1.3 percent. And it seemed like, you know, some of their spring assortment did very well. Big ticket items, think grills, patio furniture, gardening items. It seems that they did pretty well in the quarter. Same store sales were building June stronger than May, July stronger than June. So pretty solid.

17:42But then there's a lot of caution. As you mentioned, Paul, when we look at the outlook, that back half looks like there could be, you know, a pullback. And I think there's some caution, uncertainty about that consumer demand coming out of this spring, summer season. Home Depot also has some, I don't want to say leadership changes, but there's going to be, there's some leadership disruption happening. Do you anticipate there to be any shift in its ability to execute what it has, you know, laid out as its strategy with the CEO, Ted Decker taking some leave? Yeah, so it's temporary medical leave.

18:20The strategy is still in place. The leadership team seems very focused on executing all of the goals that they laid out at a December investor day. And I expect them to continue along their path, again, mostly focused on gaining shares with pros, but also being there for the consumer and really trying to drive growth even in a market where we have very low housing turnover and we just don't know when the rebound and that housing market is going to come. Lindsay, talk to us about tariffs, because when I walk into Home Depot, which is not very often, by the way, because it might shock you that I am not a handyman, I am shocked by the amount of plywood they have just stacked up there.

19:00And whenever I see that now, I think of, I'm guessing a lot of that comes from Canada. Is that being tariffed? What's Home Depot doing about tariffs these days? What are they saying? Yeah, so they had filed a claim. We knew that ahead of earnings. You know, I think there was some expectation that there would be some refunds in the quarter. They got refunds in late June. Their cost of goods gold was dropped by$685 million. You know, so significant benefit to profitability in the second quarter. There will be some benefit in the third quarter as well, though probably a little bit less than what we just saw.

19:36And then by fourth quarter, that benefit is really going to kind of roll off in terms of the refund. And in terms of tariffs, generally, costs are still rising going into the back half of the year. So by fourth quarter, gross margins expected to be flat. And then we could start to see pressure again into next year just due to those rising costs. Lowe's, which is a smaller competitor to Home Depot, those shares are up 2.1%. That company, of course, is going to report earnings tomorrow before the opening bell. What do Home Depot's results spell out for Lowe's? I mean, is it going to be one for one where we see this kind of execution at Home Depot?

20:17We assume that Lowe's is going to do that as well? So I think there was definitely some encouraging signs coming out of the Home Depot results. You know, Lowe's had high expectations for the second quarter, also expecting sort of a sequential improvement from the first quarter, which is what Home Depot saw. And a lot of that was baked into some of the spring and summer sales events that they have. They kind of stand out in some of those bigger ticket items that did really well, according to Home Depot's results. So I think there is some positive signals that Lowe's A can achieve the sequential acceleration in same-store sales that they were expecting.

20:56and B, that their sales events, you know, that was really matter to the quarter, you know, could prove successful if consumers were truly going out there and spending a little bit on the summer on bigger ticket items. Stay with us. More from Bloomberg Intelligence coming up after this.

21:26ChatGPT for Business gives teams a shared workspace with admin controls, permissions, and access to work and codecs in ChatGPT. This means your business can move from question to answer and code to rollout quicker. Join over 10 million business and enterprise users worldwide already using ChatGPT for Work. Download the ChatGPT desktop app or contact sales to learn more. Everyone's talking about how AI is transforming work, especially in sales. While the landscape shifts, one thing remains the same, the thrill of closing a deal. Whether it's a gong or a confetti machine, every team has its celebration rituals.

22:02Adio is designed for that moment. It's the agentic CRM that turns customer signals into actionable insights, helping you close deals faster. With revenue agents and automations working around the clock, you'll have everything you need to scale your go-to market efforts. Elevate your wins with Adio. Start your free trial at adio.com slash iHeart. Innovation is what gets your business to market. And Wasabi is designed to give every business a shot at competition. How? Break free from skyrocketing storage costs and unpredictable egress fees from old and top-heavy legacy providers. You know, the big guys.

22:39Wasabi is the world's hottest cloud storage company and the go-to provider for professional and collegiate sports teams and leagues around the world. And here's why. Innovation. From Wasabi's AI-enabled intelligent media storage Wasabi Air to the industry's only cloud storage service with triple protection against cyber criminals, data deletion, and ransomware, the world's top companies trust Wasabi. Remember, Wasabi is up to 80 % less than market competition and doesn't charge a cent for businesses to access their own data. Wasabi, another championship story. Check them out for free at Wasabi.com.

23:16Wasabi Hot Cloud Storage, proud partner of iHeart Podcast Network.

23:24You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. All right, let's switch gears to some stock ideas, some investment ideas, some companies to watch. And for that, we turn to Tim Craig, a global chief content officer for Bloomberg Intelligence. He's based in London here. And Tim, you guys have had this Companies to Watch series of research reports for quite some time now. Now you guys are turning your attention to Asia-Pacific.

24:02Talk to us about kind of how you put this list together for companies in a fast-growing part of the world, Asia-Pacific. Yeah, for sure. Thanks for having me on, as always. So you're right. this is part of an ongoing series. We do 50 companies to watch for the year ahead, which is global, 10 companies to watch each quarter. We'll be coming back to you in another month or so with that, which is also global. But Asia is gaining intrigue, whether it's the ASEAN markets in Southeast Asia or what's going on in China or Japan, etc. And with that in mind, there was an opportunity to think, well, what's interesting for the rest of this half that's Asia specific?

24:48And as always, we base these ideas off of our focus ideas, which are companies where we've got a high conviction, fundamental view, and we see catalysts ahead that can bring the market around to what we think is likely to happen. So that's really the crux to this. So it's kind of cool. AI is a big theme here. Coming out of that part of the world, Asia Pacific, any TMT ideas kind of hit your list? Yeah, so there are a couple. One, actually, interestingly, on the negative side is Z.AI or Zipu, as it's called in China. Yeah, this is a cautious idea. And I should have mentioned up front, there's several of these ideas that are on the cautionary side of things as opposed to just being gung-ho positive.

25:44And the Chinese companies are gaining steam in terms of speed and performance. There's been any number of recent announcements, one from you'll remember Moonshot with Kimi 3 that was broaching the same competition, same competitive dynamic as some of the big US LLMs. Zipu has really good performance, but they're just beating each other up on competition. And so it's almost like the better they do and the more business they do, the higher the cost are. And we think that they're in a profit spiral on an ongoing basis, and it's really hard to get out of it. By the same token, the telecom business, broadly speaking, across Asia is doing well.