EU DSA Legal Battle: A Turning Point for Big Tech's Regulatory Costs and Meta's Valuation

The European Union's Digital Services Act (DSA) has become a battleground for tech giants Meta and TikTok, as they challenge the legality of a 0.05% supervisory fee on their global net income. This dispute, now before the EU General Court, could redefine how regulatory costs impact Big Tech's profitability—and investor confidence in companies like Meta (META). The outcome, expected by 2026, could either amplify compliance burdens or unlock earnings upside, making this case a pivotal moment for the sector.

The Legal Challenge Explained

At the heart of the dispute are two core issues: transparency and proportionality. Meta argues that the European Commission (EC) miscalculates fees by using the group-level revenue of its parent company (Meta Platforms Inc.) instead of its EU subsidiary (Meta Platforms Ireland). This method, Meta's legal team claims, inflates the fee by millions while violating the DSA's intent to base charges on the EU-specific footprint of platforms.

TikTok, meanwhile, alleges that the EC's user-counting methodology is flawed, double-counting individuals who access the app via multiple devices. TikTok's lawyer further argues that the fee structure unfairly requires it to subsidize compliance costs for other platforms, exceeding the DSA's scope. Both companies stress that the lack of transparency in fee calculations violates procedural fairness under EU law.

The EC defends its approach, stating that group-level financial data reflects the resources available to subsidiaries and ensures equitable oversight. A ruling in the EC's favor would solidify its authority to impose fees based on consolidated revenue—a precedent with significant implications for Big Tech's bottom lines.

Regulatory Risks and Their Impact on Valuation

The stakes are high for Meta and the broader sector. If the court rules against the companies, the DSA's fee structure would remain intact, locking in recurring costs tied to global revenues rather than localized operations. For Meta, which reported $149.5 billion in global revenue in 2023, this could add tens of millions annually—a drag on margins.

Conversely, a ruling in favor of Meta or TikTok would force the EC to revise its methodology, likely reducing compliance costs. Analysts estimate that a 10% reduction in regulatory fees could boost Meta's operating margin by up to 0.5 percentage points, enhancing its already robust free cash flow profile.

Analyst Perspective and Valuation Outlook

The analyst community remains bullish on Meta, with a Strong Buy consensus (42 Buy ratings, 3 Hold, 1 Sell) and an average price target of $698.07—a 22% premium to current levels. This optimism hinges on Meta's AI-driven revenue growth and cost discipline, but the DSA case introduces a wildcard.

If Meta prevails, the immediate benefit would be lower compliance costs, but the longer-term impact could be far greater. A win would embolden other platforms to challenge opaque regulatory frameworks, potentially curbing the EC's ability to impose unilateral fees. This could reduce sector-wide uncertainty, stabilizing valuations for Big Tech.

However, a loss would compound existing headwinds. Meta is already navigating slower social commerce growth in Europe due to strict data laws and cultural preferences for traditional retail. A ruling against it would amplify these pressures, potentially diverting capital from growth initiatives to regulatory compliance.

Investment Implications

For investors, the case presents a high-reward, high-risk binary. The bull case—a favorable ruling—could unlock a 15–20% upside in Meta's valuation by easing compliance costs and reducing regulatory overhang. Meanwhile, the bear case—a loss—might pressure shares by 5–10% as costs rise and investor sentiment turns cautious.

The current consensus price target reflects optimism about a resolution in Meta's favor. Even if the court rules against the companies in 2026, the delay could provide Meta time to offset costs through margin expansion or strategic investments, such as its recent $14.8 billion stake in AI startup Scale.

Final Take

The EU DSA legal battle is a litmus test for Big Tech's ability to push back against regulatory overreach. For investors, Meta's valuation is already pricing in some DSA-related risks, but the stock's strong fundamentals (AI-driven growth, $80 billion in cash) offer a margin of safety.

If the court rules in Meta's favor, the stock could surge as compliance costs shrink and the sector's regulatory cloud lifts. Even if it loses, Meta's scale and innovation will likely weather the storm. For now, the Strong Buy consensus is justified—provided investors hold through the regulatory uncertainty.

Recommendation: Maintain a long position in META, with a focus on the Q2 2026 ruling as a catalyst. Pair this with a watch on TikTok's parallel case and any shifts in the EC's regulatory stance post-ruling.

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Nick Timiraos
June 6, 2025