Why Meta Platforms Stock Plunged on Monday

Metaplatforms (META -1.22%) We received some discouraging news from our nation’s highest court on Monday, and investors responded accordingly. They saw the leading social media stock trade down more than 1% after digesting the legal headlines on a day when the S&P 500 The index closed in positive territory, up 0.2%.

SCOTUS says no

The news came from none other than the U.S. Supreme Court, which rejected Meta’s request to essentially sidestep a major class action lawsuit from the company’s advertisers. The social media giant had appealed a lower court’s decision that allowed these disgruntled parties to jointly sue for damages.

In making that decision last March, the 9th U.S. Circuit Court of Appeals in San Francisco said those advertisers could join together in a class action lawsuit alleging the company made a similar alleged misrepresentation of the reach of its ads.

The advertisers are seeking up to $7 billion in damages. They accuse Meta, operator of the mass user companies Facebook and Instagram, of reporting the number of accounts and not the number of actual users of these websites.

The lawsuit could end up being pretty big. According to a Reuters report, the class could end up encompassing millions of advertisers, including both individuals and companies.

Advertising space is key

While Meta is a giant, one of its Achilles’ heels is that its success relies heavily on advertising. And while the company has the resources to fight this lawsuit and pay damages or a settlement, an adversarial relationship with the people and companies that generate a majority of its revenue is not the best prospect for the company.