Surgeon General Eyes Social Media Stocks With Warning Label Push

Social media stocks are in focus Monday after U.S. Surgeon General Vivek Murthy this morning called for a warning label on social media platforms in an op-ed in the New York Times.

"The mental health crisis among young people is an emergency – and social media has emerged as an important contributor," Murthy said. “Adolescents who spend more than three hours a day on social media face double the risk of anxiety and depression symptoms, and the average daily use in this age group, as of the summer of 2023, was 4.8 hours. Additionally, nearly half of adolescents say social media makes them feel worse about their bodies."

Murthy goes on to say that it's time for warning labels to be placed on social media platforms. "Social media is associated with significant mental health harms for adolescents" is the warning label he suggests and cites evidence from tobacco studies that show how warning labels can increase awareness and change behavior. He goes on to cite a survey of Latino parents in which 76% of respondents said a warning label from the surgeon general would prompt them to limit social media use by their children.

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In addition to warning labels, Murthy said legislation needs to be passed by Congress to prevent platforms from collecting sensitive data from underage users and restrict other features, such as push notifications and infinite scroll, which contribute to excessive use. The surgeon general adds that companies should be required to share all of their data on how the platforms impact user health with independent scientists and the public, and to allow for independent safety audits.

"The moral test of any society is how well it protects its children," Murthy said. "We have the expertise, resources and tools to make social media safe for our kids. Now is the time to summon the will to act. Our children's well-being is at stake."

Where do analysts stand on social media stocks?

Of the four main social media stocks – Meta Platforms (META), Snap (SNAP), Pinterest (PINS) and Reddit (RDDT) – analysts are most bullish on META and least bullish on SNAP.

According to S&P Global Market Intelligence, the average analyst target price for META stock is $520.83, representing implied upside of about 4% to current levels. Additionally, the consensus recommendation is Buy.

Financial services firm Argus is one of the more bullish outfits on the Magnificent 7 stock with a Buy rating and $550 price target.

"Meta is benefiting from both a reacceleration in advertising revenue and as a result of deep cost cuts in 2023 that are driving margin expansion and robust cash flow," Argus analyst Joseph Bonner said in a late-April note. While investors may be cautious about the company ramping up its spending on its artificial intelligence (AI) initiatives, "we have been to this rodeo before. Meta typically builds an audience for new products before moving to monetization. We think this is again Mr. Zuckerberg's clearly stated strategy around generative AI," Bonner adds.

On the other hand, Argus Research is neutral on SNAP stock with a Hold rating.

"Although SNAP is trading well below pandemic peak prices in the $80s, we will not upgrade the shares on price alone," Argus analyst Jim Kelleher said in an April 26 note. "As we monitor the digital advertising market and the allocation of spending among the various platforms, we believe that a neutral posture remains appropriate."

Kelleher's Hold rating aligns with the consensus Hold recommendation on the communication services stock at S&P Global Market Intelligence. Meanwhile, the average price target of $15.19 is below Snap's current price.

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