BREAKINGVIEWS-Social media bans may rattle Big Tech's ad engine

By Jennifer Johnson

LONDON, Feb 6 (Reuters Breakingviews) - In a matter of months, tech addiction among kids has gone from a parental pet peeve to a full-blown public health panic. Australia’s social media ban for under-16s only went into force at the end of last year – and other countries, including France and Spain, are already keen to follow its lead. No fewer than eight U.S. states are trying to bring in similar restrictions or parental consent requirements. Logic suggests that platforms like Snapchat and Meta Platforms-owned META.O Instagram will lose advertising revenue if minors are barred on a global scale, but investors are struggling to price this risk.

True, many regions have already restricted data gathering on underage users. Europe’s Digital Services Act and the U.S. Children's Online Privacy Protection Act, which was updated last year, both make it harder to monetise children's eyeballs with targeted advertising. That said, research consistently shows that younger generations are among the most engaged users of social media platforms, so their absence could materially shrink audience numbers.

A global ban would clearly dent advertising revenue. Harvard researchers in 2023 estimated that U.S. users aged 17 and under were responsible for $11 billion in sales across six popular platforms. Snapchat was the most exposed, according to the study, with 41% of its U.S. ad revenue attributed to this cohort, followed by TikTok at 35%, YouTube at 27% and Instagram at 16%. Even less dramatic scenarios, like classroom cell phone bans, could be material for the tech companies. When eMarketer, an ad industry research group, modelled this scenario in the U.S., the result was stunted revenue growth at most major platforms.

Social media investors and analysts appear to be shrugging off the risks. Advertising sales at Instagram-owner Meta are expected to exceed $433 billion in 2030, according to Visible Alpha estimates, implying a steep 17% annual growth rate from 2025. The company is currently valued at a little over 12 times its forecast EBITDA over the next 12 months, in line with its 10-year average, as per Visible Alpha data and Breakingviews calculations. Meta may be relatively well placed to manage any hit, given its lower exposure to youthful users. Yet Snapchat-owner Snap SNAP.N – arguably the most vulnerable, according to the Harvard study – is still trading on nearly 11 times forward EBITDA. That’s despite the company making a loss last year, even before any ban kicks in.

It's possible that motivated teens will find clever ways around age-gating measures. While there's some evidence of that in Australia, the new law has still had an impact: platforms were forced to remove some 4.7 million accounts belonging to underage users as of mid-January. Even if bans are only partially successful, a generation that grows up with tighter limits on social media access may be less desperate to log on once they're over the legal age. That all points to a less lucrative future for the platforms.

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CONTEXT NEWS

On February 3, Spain and Greece proposed national bans on social media use by children – joining countries such as France and the UK in considering tougher stances.

Speaking at the World Governments Summit in Dubai, Spain’s prime minister, Pedro Sánchez, declared his intention to ban social media for under-16s. Greek government sources told Reuters that the country is close to announcing a similar restriction on under-15s.

Sánchez also said Spain had joined five other European countries in what he called a “coalition of the digitally willing” to coordinate regulation.