Meta settles social media addiction lawsuit and avoids a trial, New York Times reports

The deal removes one source of legal surprise, but Meta still carries a $25bn privacy penalty and is selling stock and preferred shares to fund record spending.

Meta has settled the social media addiction lawsuit before it reached a jury, the New York Times reports, taking one case off a legal docket that investors have been struggling to size. It is a real reduction in uncertainty. It is also a small one.

The larger exposure sits elsewhere. A Santa Fe jury found Meta liable on September 25 over misleading privacy statements, and the penalty was set at $25bn on October 1. Settling one case does not tell the market where the ceiling on Meta's liabilities lies.

That matters because Meta is asking investors for a great deal of money at once. It plans to offer $22.5bn of Class A common stock and may sell up to $60bn of Class C stock, with AMD putting in $1bn. Morgan Stanley and Goldman Sachs are underwriting 250 million depositary shares of 6.50% preferred, with a further 37.5 million available to the banks within 30 days.

The bond market has already registered the strain. Five-year credit default swaps on Meta reached 114.5 basis points, the highest on record, according to Markit data, as the company raised its capital spending forecast and leaned harder on debt and new equity to pay for it. Third-quarter earnings of $7.40 a share beat estimates, but revenue of $64.60bn fell just short of forecasts.

So the settlement trims the range of legal outcomes without altering the sum the market has been pricing since the 6% share drop: record spending, a stretched balance sheet and verdicts that are not yet paid. The company has cut headcount by 15% to 66,775 while doing it. Until the $25bn judgments are resolved, one avoided trial will not shift that calculation.