MW Meta could get broken up in an antitrust case. Why that may be good for its stock.

By Laila Maidan

While Meta might prefer to keep its empire intact, spinoffs of its major businesses could unlock shareholder value in a number of ways

Sometimes you're forced to break up, even if you don't want to. That's the sort of the predicament Meta Platforms Inc. could find itself in - but for investors, it's not necessarily a bad thing.

The U.S. Federal Trade Commission is accusing the digital giant of monopolizing the social-networking market in an antitrust case that kicked off on Monday. The FTC alleges that Meta $(META)$ - which used to go by the corporate name Facebook - engaged in anticompetitive practices by neutralizing its competition when it acquired Instagram in 2012 and WhatsApp in 2014.

If Meta is found guilty of violating antitrust laws, it could be forced to divest its subsidiaries or restructure the business.

So far this year, Meta's stock has had a better time than most of its Big Tech peers. A market-cap-weighted composite index of the "Magnificent Seven" tech stocks, not including Meta, is down 17.3% over the course of 2025. Meanwhile, Meta's stock is only down 9.5% over the same period, according to FactSet data compiled by Dow Jones Market Data. Within the group, only Microsoft Corp.'s $(MSFT)$ stock has performed better.

The start of the antitrust case has been a big drag on the stock, with almost about half of Meta's losses this year coming across the most recent two trading sessions.

The stock market doesn't like uncertainty, so it's fitting that a multiweek legal battle wouldn't sit well with Meta's shareholders. But the big question is: What happens to the shares if the company is forced to break up?

There could be a few outcomes. Meta could spin off Instagram and WhatsApp into their own publicly traded companies, and then investors would get shares in all three stocks. Alternatively, Meta could sell one or both of the subsidiaries and pocket the cash. It's also worth noting that any process is likely to be drawn out with the prospect of appeals, as Alphabet Inc. $(GOOG)$ $(GOOGL)$ is learning from its own antitrust battle with the Justice Department.

Hypothetically, though

There's no sure way to know how the antitrust case could play out. But generally, a split up of the businesses could be a good thing for shareholders.

Gil Luria, head of technology research at D.A. Davidson, says Meta should even consider proactively spinning the segments off. That's because the different platforms could trade at much higher multiples if they weren't bundled together. One positive in this scenario is that investors would gain more transparency around the health of each business.

Currently, Meta does not share a detailed breakdown of its revenues based on each app. So it follows that a split would give investors better insight into the revenues, risks and growth rates of the separate platforms. It means more flexibility to choose which company to keep and which to sell.

"So WhatsApp, for instance, is the fastest-growing, Instagram is the second fastest, and Facebook is the slowest," Luria said, based on qualitative comments he picked up from Meta's earnings calls.

Therefore, if Facebook has steady recurring revenue, then as a standalone company it could pay a higher dividend or buy back more stock, making it a good fit for value investors. On the other hand, if WhatsApp was the fastest-growing platform, it would be a more suitable stock for growth investors, Luria noted. That's because WhatsApp's revenue prospects for things like "click-to-message" ads and AI chats could be large, but they still are at early testing stages in places like India, Indonesia and Malaysia, according to company commentary from its fourth-quarter earnings.

Then there are research-and-development costs, which skew a company's net income. The weight of Meta's spending on areas such augmented reality would be unloaded from the spinoff companies, he added.

However, it also follows that volatility could kick up in the period that follows as investors reshuffle exposure and determine how each app would be impacted by the split. All three branches currently benefit from Meta's artificial-intelligence spending, a perk that might be lost. They are also intertwined by a simplified process that allows users and advertisers to streamline post sharing between Instagram and Facebook, which could also be impacted by a split. And Morningstar analyst Malik Ahmed Khan told MarketWatch that WhatsApp "is not really directly monetizable," as its main value for Meta is offering insights on what users are sharing thanks to native messaging integrations.

Notable companies that separated branches of their business include Hewlett Packard Enterprise Co. $(HPE)$. In 2017, HPE spin-merged its enterprise segment with another company called CSC into DXC Technology Co. $(DXC)$ Both segments benefited: HPE was up by 26% and DXC by over 47% in the 12 months following the split, according to Dow Jones Market Data, using figures compiled from FactSet.

In January 2023, GE spun off GE HealthCare Technologies Inc. $(GEHC)$, allowing the aerospace and healthcare divisions to go their separate ways. GE's stock was up almost 78% and GE HealthCare's was ahead almost 27% in the 12 months that followed, according to Dow Jones Market Data. (GE officially changed its name to GE Aerospace $(GE)$ upon the spinoff of another business, GE Vernova Inc. $(GEV.AU)$, in April 2024. GE Vernova's stock more than doubled in its first year of trading separately as an energy-equipment business.)

Below is a chart that shows the first-year outperformance of GE and GE HealthCare shares relative to ETFs that track their respective sectors, the iShares U.S. Aerospace and Defense ETF ITA and the iShares Global Healthcare ETF IXJ.

Not all spinoffs drive near-term success. For example, the separation of eBay Inc. $(EBAY)$ and PayPal Holdings Inc. (PYPL) in July 2015 saw their respective stocks fall by 5.5% and 1% in the following 12 months, according to Dow Jones Market Data, using figures compiled from FactSet. While PayPal's stock has also struggled more recently, it was a big winner early in the pandemic and over a multiyear span leading up to that. The company seemed to benefit from being able to invest in payments to a degree that perhaps wouldn't have been possible under the eBay umbrella.

-Laila Maidan

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 15, 2025 15:05 ET (19:05 GMT)

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