Meta Platforms Inc. (NASDAQ: META) began its most extensive youth-safety trial on Monday, with the company disclosing that hypothetical penalties in the case could reach as much as $1.4 trillion. The figure, which represents 15.5 times the company's cash and investments at the end of the second quarter, underscores the scale of legal risk facing the social media giant as it defends against allegations of improper data collection from minors.
The trial, which opened in Oakland, California, involves 29 state attorneys general, with four states taking the lead in the proceedings. The plaintiffs accuse Meta of unlawfully gathering data from children and designing Facebook and Instagram features intended to capture minors' attention. Meta has denied these claims, stating that its platforms enforce rigorous child-exploitation policies and have invested billions in safety measures.
While the $1.4 trillion figure is notional and not based on any official request from the states, it highlights the potential magnitude of liability. Legal experts note that the headline number is unlikely to represent the ultimate payment, but the lawsuit introduces legal expenses as a significant spending factor alongside artificial intelligence investments. Meta closed June with $90.26 billion in cash and marketable securities, providing a buffer against potential penalties.
The jury in the case is advisory only, meaning its decision will not be binding on U.S. District Judge Yvonne Gonzalez Rogers, who will issue the final ruling after a trial expected to last six weeks. This structure reduces the impact of each individual jury signal but does not eliminate the risk tied to precedent. Legal experts told Reuters that judges frequently follow recommendations from advisory juries, though comprehensive data on outcomes is sparse.
New Mexico provides a cautionary example of how such cases can unfold. In March, a jury awarded $375 million in a separate case, and this month a judge added $567 million and mandated youth-safety reforms for five years, bringing Meta's total liability in that state to $942 million. The company intends to appeal the decision. New Mexico's attorney general is also preparing two new bills that would expand consumer protections to cover social media, AI, and chatbots, a move that could be followed by other states.
Meta's financial results already reflect the impact of legal costs. In the second quarter, legal charges totaled $2.40 billion, accounting for 15.1% of net income. The company reported revenue of $60.80 billion, up 28% year-over-year, with advertising revenue climbing 27% to $59.36 billion. However, costs and expenses surged 55% to $42.03 billion, including $1.18 billion in severance payouts, pushing operating margin down to 31% from 43% a year earlier.
The company's cash position remains strong, but capital expenditures are rising sharply due to AI investments. Meta spent $31.08 billion on capital expenditures in the quarter, and free cash flow dropped to $784 million. The company forecasts capital spending between $130 billion and $145 billion for the full year. Chief Executive Mark Zuckerberg stated that AI is advancing Meta's main business while also creating new enterprise prospects, but investors are now tasked with balancing these benefits with legal and infrastructure challenges.
Analysts remain largely optimistic following earnings, though most lowered their price targets. The consensus shows 55 buy recommendations, seven holds, and zero sell ratings, with a mean price target of $822.05. Legal issues continue to pose a distinct risk, and the cumulative effects of potential fines, product redesigns, and ongoing litigation could place greater demands on Meta's cash reserves. While the company can withstand a single penalty the size of New Mexico's, successive fines and mandated changes would test its financial resilience.
