Recently, Meta Platforms (NASDAQ: META) announced it will be discontinuing its third-party fact-checking programs across its social media sites. CEO Mark Zuckerberg stated that platforms like Facebook and Instagram are meant to allow “people to express themselves freely,” and claimed that this change will support that goal.

This decision is intriguing not only because of its timing—just ahead of President-elect Donald Trump’s inauguration—but also due to the increasing prevalence of misinformation on social media. For Meta Platforms, stepping back from its efforts to manage this growing problem may not be beneficial, potentially resulting in negative consequences for its stock.

Taking cues from X’s approach

Zuckerberg indicated that without a third-party fact-checking system, users will self-regulate through a “community notes” feature. If you’re familiar with X (previously Twitter), you might notice notes that challenge a post’s claims, add context, or supply additional information.

The idea is that this could enhance free speech while addressing false claims, misinformation, and disinformation. If users can comment on dubious posts with helpful insights, it may help others avoid drawing incorrect conclusions.

However, mirroring X’s model carries some risks. Since Elon Musk’s takeover, many advertisers have departed from the platform, largely due to concerns about its looser moderation and the rise of extreme and polarizing content. Brands typically aim to avoid association with controversial material to prevent alienating any part of their audience.

While liberalizing restrictions in the name of free speech might appeal to some, it raises questions about the neutrality of the new moderation approach. The community-based strategy also presupposes that users will take the time to read these notes rather than react impulsively to posts that provoke strong emotions.

A decline in ad revenue might hinder stock performance

Many perceive Meta’s change as a way to court Trump, who faced a two-year Facebook ban starting in 2021. By implementing Trump-friendly policies now, Meta could potentially evade scrutiny and pressure from regulators or Trump himself in the future.

However, the more significant risk is that advertisers might start diverting their marketing budgets to other platforms. Facebook has frequently struggled with its association with unverified news and misinformation. In an age of generative artificial intelligence, misleading content is even easier to create. The demand for stringent fact-checking on social media is arguably rising. Departing from this need could be detrimental for Meta.

One key reason the stock surged over 400% since the beginning of 2023—after nearly a 70% drop from its 2021 peak—is that advertising expenditure on its platforms has been increasing. With a possible TikTok ban in the U.S. and advertisers distancing themselves from X, Meta has become a preferred choice for marketers. In the first nine months of 2024, the company reported a 22% year-over-year increase in sales to $116 billion, with net income climbing 66% to approximately $42 billion.

If Meta’s growth begins to decelerate, this could exert pressure on its stock, currently trading at historically high levels with a trailing earnings ratio of 29 times—an extensive multiple that may be challenging to justify amid slower growth.

Is Meta Platforms stock still a sound investment?

This social media company has enjoyed a rise in advertising revenue in recent years, but I’m skeptical that this trend will persist. There’s a growing array of alternative avenues for advertisers to reach audiences. For instance, Walmart’s acquisition of TV manufacturer Vizio might enhance its advertising operations, while platforms like Reddit are also working on boosting their advertising efforts. Given the economic uncertainty, it’s reasonable to expect that companies might cut back on advertising budgets to save costs.

Despite Meta’s substantial growth and impressive performance in recent years, abolishing its third-party fact-checking system could prove to be a costly mistake, especially at this critical juncture. For investors, I believe there are better growth opportunities available than Meta Platforms today, and considering its high valuation, a market correction may be in order.

Randi Zuckerberg, a former market development director and spokesperson for Facebook, as well as sister to Meta’s CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. David Jagielski owns no shares in the mentioned stocks. The Motley Fool holds positions in and recommends Meta Platforms and Walmart. It has a disclosure policy in place.

The Motley Fool is a content partner for YSL News, providing financial news, analysis, and commentary with the aim of empowering individuals to manage their finances. Their content is produced independently of YSL News.

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