Consent Order w/ Teen Usage Limits Removes an Overhang; Monetization Limited as New Products Ramp
CITI’S TAKE
We believe Meta’s $18B settlement (assuming YT & TT join) with 52 U.S. State AGs around teen usage removes a significant overhang in shares and comes at a time when Meta’s AI product roadmap is emerging. Under the settlement, 13-17yo’s on FB and IG are limited to 2hrs/day, night & school usage blocks are enabled, & usage prompts should limit the potential for teen addiction. While there is risk to engagement, given the avg. teen uses IG for ~1hr/day and teens account for less than 1% of revenue currently, we believe the operational impact is likely to be somewhat limited. And while ongoing litigation risks remain, as Meta releases Muse models & Muse Code, Hatch agents, and Meta AI, among other products, we believe there are several product catalysts ahead as we head into Meta Connect on Sept. 23. We reiterate our Buy rating and $800 TP.
Key Takeaways
Settlement Calls for Usage Limits and Platform Protections for Under 18 MAUs—These changes go into effect for 13–17yo users and could be in two phases if YouTube and TikTok join the settlement during the first 5 years. Phase I limitations (which apply to Meta’s O&O services only and has a term of 5 years) include: Daily Limit of 2 hours across FB and IG (note the average teen on IG currently uses the platform for ~1hr /day and we note Meta AI is not classified as a Social Media app); Night Mode and School Mode which limit usage from Midnight to 6am and notifications from 8am to 3pm, respectively; and Usage Prompts with alerts after 15 minutes of continuous use and 60-90 mins of use per day. This is in addition to Meta’s Age Assurance detection tools, making Likes Hidden, and making 13yo+ content settings the default. Phase II goes live once industry-wide adoption is reached (defined as YouTube, TikTok, & Snap) (see Figure 1 for more details on the Usage Limits).
Current Usage Insights Across IG, YT, and Snapchat—Meta’s proposed usage limitation of 2 hours/day across all Social Media Platforms compares to daily teen usage on IG of ~1 hour/day, suggesting the settlement likely does not impact overall usage. This compares with Sensor Tower data suggesting time spent per DAU on IG at ~61 mins/U.S. DAU, TikTok at 85 mins/U.S. DAU, and YouTube at 90 mins/U.S. DAU (see Figure 4). And while Meta does not disclose the number of U.S. teens on its platform, Pew Research suggests ~63% of US teens are on IG with 55% using it daily, suggesting ~13-14M teens or ~5% of US MAUs.
Teens Account for Less than 1% of Meta’s Revenue—This was disclosed earlier this year and as teens are excluded from ad targeting based on interests, behavior, and demographics as well from specific ad campaigns (note teens are excluded from Adv.+ Catalog Ads), per Meta’s Business Center, we do not believe the settlement is likely to impact monetization significantly.
Broader Impacts Across the Social Media Landscape—Simply put, we would expect Meta’s Usage Limits and Platform Protections to be broadly adopted across most other Social Media Platforms and we note Phase II of the settlement would apply if Snap, TikTok, and YouTube (i.e. Core Industry Members per the settlement docs) were to adopt the terms of the settlement. Per Pew Research, 92% and 68% of teens use YouTube and TikTok, respectively, followed by Instagram at 63% and Snapchat at 55%, suggesting potentially stricter controls could disproportionately impact engagement at these platforms. Though we believe monetization remains relatively limited .
Consent Judgement Financial Impact at ~$18B & Reduces Regulatory Overhang—As part of the settlement with 52 state AGs (states, territories, & DC), Meta is not admitting liability and Meta announced that it has agreed to pay $18B to participating STATES. This includes $1B to Texas following today’s settlement, with $12.7B (70% of total) paid over 10 years and the remaining $5.3B (30%) contingent upon YouTube and TikTok paying a matching fine and each platform implementing usage controls (1-hour Daily Limit, Night Mode, Age Assurances). We note the consent order outlines $1.17B in Guaranteed Installment Payments, $502M in Contingency Installment Payments, a $459M payment tied to Cambridge Analytica, and $75M Cost Fund.
As a result of the settlement, Meta is taking a $10B legal expense accrual in 3Q26 and is therefore increasing 2026 expense guidance (which we have incorporated into our model). That said, the settlement is well below the $200B & $1.4T amounts that were initially contemplated by state AGs associated with this suit. Key here, we believe the settlement brings certainty to Meta, creating a framework going forward.
Thoughts on New Mexico, Florida, and Meta’s Ongoing School District Litigation—New Mexico’s $942M judgement ($375M fine + $567M abatement fund) announced in late March is currently undergoing an appeal process that we believe is likely to take some time to finalize. Florida’s AG rejected Meta’s settlement announced today, though we believe a trial date is likely to be in 2028. Lastly, while Meta continues to face child safety cases from ~1,200 school district cases (the 1st case was settled in May ’26; next trial is planned for Feb. ‘27) and individuals (e.g. 200K+ arbitration claimants for harms caused by IG), we note the burden of proof in both of these suits is on the plaintiff to show harm caused directly by Meta’s products (unlike state AGs, which we believe do not have to prove direct causation) and, as a result, we would expect Meta to continue to proceed with these cases and we believe these cases are likely to have a more limited financial impact.
Shares of META currently trade at ~16x our ‘27E GAAP EPS of $36.92, representing a compelling risk/reward in shares, in our view. Underlying our positive view on Meta include recent AI product launches with Muse Code and its Muse Spark 1.2 model as we await the release of its consumer agent Hatch and Meta Connect on Sept. 23. And with 1M businesses using Business Agent, 9M+ SMBs using Meta’s AI creative tools, and continued R&R improvements driving IG time spent (+13% Y/Y in July), we believe Meta is well positioned to deliver continued engagement and monetization gains.
Our $800 target price is based on ~22x our 2027E GAAP EPS of $36.92 (from $36.93 previously) and implies ~11x our 2027E EV/EBITDA. We justify our valuation methodology based on Meta’s user scale, growing engagement, product super cycle and AI opportunity, ads innovation, and revenue growth, and we’re watching investments and overall profitability.
Updating our Projections: Following the settlement of the lawsuit, we are updating our projections for 3Q26 to account for the $10B legal expense. We now project total 2026 Expenses of $176B (+49.6% Y/Y), inclusive of $12.4B in legal charges ($2.4B in 2Q and $10B in 3Q), and compares to Meta’s guidance of $165-$169B. As a result, we now project 2026 GAAP EPS of $28.11, ~10% below our prior projection.
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