Meta (NASDAQ: META) may surmount its anti-trust woes

Meta Platforms (NASDAQ: META) has struggled in recent weeks, with its stock sinking 30% since Feb. 14 amid concerns about the government’s anti-trust case against the company.

In a trial that began April 14, the Federal Trade Commission is alleging that the company bought WhatsApp and Instagram to squelch competition and calls for Meta to be broken up. Meta also owns Facebook of course. 

Despite the court trial, things are looking up for the company in several ways. First, there’s a good chance the government’s case will fail. Second, if it succeeds, there’s a chance that a company breakup would be good for shareholders. And third, Meta’s business performance has been humming along in recent months.

Those factors may explain why the company’s stock has outperformed other members of the Magnificent 7—Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Nvidia (NASDAQ: NVDA) and Tesla (NASDAQ: TSLA)—this year. Meta has dropped 13% so far this year, far less than the 20% slide for the seven technology titans as a whole.

Meta’s formidable defense 

As for the antitrust case, Meta seems to have a strong defense. There are plenty of thriving competitors for Meta in the social media space, such as Tik Tok and Reddit. So it’s hard to argue that Meta created a monopoly. 

Also, the government approved the acquisitions when they occurred, so it clearly saw no significant antitrust problems then. Meta picked up Instagram for $1 billion in 2012 and snagged WhatsApp for $19 billion in 2014.

To be sure, the government is presenting some damning emails from Zuckerberg. In 2008, he wrote that “it is better to buy than compete,” and in 2012 he said that he wanted to buy Instagram to “neutralize a potential competitor.”

Advantages of breakup

But if the courts do decide to split Instagram, WhatsApp and Meta, including Facebook, into three separate companies, that may actually help shareholders. Meta doesn’t provide detailed data about each of the three apps now. 

So if there were separate companies, investors would have more information about them. And that would make it easier to determine what their valuations should be. 

Analysts say that WhatsApp is Meta’s fastest-growing social media unit, Instagram is second and then Facebook. After a breakup, investors could decide whether they want a stock with growth characteristics or value.

In any case, Meta has generated strong earnings in recent quarters, despite forking out $45 billion on augmented virtual reality (the metaverse) over the past four years with nothing to show for it. Revenue soared 21% in the fourth quarter from a year earlier, to $48 billion, and earnings per share gained 50%. Both numbers exceeded analysts’ estimates.

Meta remains an advertising company, with 97% of its revenue coming from that segment. The company accounts for about 21% of US digital ad spending, according to Emarketer. And Meta’s ad opportunities should increase. That’s because industry sources predict total US online ad spending will surge 47% this year to $456 billion, after rising 15% last year.

So Meta enjoys some tail winds, though it may not be smooth sailing from here.

The author owns Meta shares.