Why Meta Platforms Stock Slumped on Monday

Meta Platforms (NASDAQ: META) received some discouraging news from the highest court in our land Monday, and investors reacted accordingly. They traded the bellwether social media stock down by more than 1% after digesting the legal headlines, on a day when the S&P 500 index closed in positive territory with a 0.2% bump higher.

SCOTUS says no

The news came from no less an entity than the U.S. Supreme Court, which declined Meta's request to essentially duck a large class action lawsuit by the company's advertisers. The social media giant had appealed a lower court's decision to allow those disgruntled parties to sue for damages as a group.

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In making that ruling last March, the 9th U.S. circuit court of appeals in San Francisco said that since the company stood accused of similar alleged misrepresentation of the reach of its ads, those advertisers could band together in a class action suit.

The advertisers are seeking damages that could top $7 billion. They accuse Meta, which operates the mass-user entities Facebook and Instagram, of citing the number of accounts rather than that of actual people using such sites.

The lawsuit could end up being quite sizable. According to a Reuters report, the class could end up including millions of advertisers, comprising both individuals and businesses.

The ad space is key

While Meta is a behemoth, one of its Achilles' heels is that it is heavily dependent on advertising for its success. And while it has the resources to fight this legal battle and pay damages or a settlement, having an adversarial relationship with the people and businesses that provide much of its revenue isn't the best look for the company.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.