In typical internet fashion, there has been much speculation about President Trump’s recent moves to ‘ban’ or remove legal safeties for social media. This came mere days after Twitter (NYSE: TWTR) attached warnings to a number of the President’s tweets, prompting people to fact-check his posts.
Currently, social media companies have had a special provision which allows them almost autonomous power over the mediation of content on their platforms, as well as immunity from any illegal postings by users. Whilst Trump’s reaction against his own censoring seemed sudden, the effect is something that has been in the works for a while, with both Democrats and Republicans have called for a reform of Section 230 of the Communications Decency Act.
This issue has taken a backseat for now whilst the BLM protests continue, but investors should be aware though that it will be back on the agenda in the near future, particularly, as the lawfulness of this executive order will soon be addressed in the courts.
But what damage can any legislation do?
Following the Twitter incident, Facebook (NASDAQ: FB) CEO Mark Zuckerberg was quite emphatic in his assertion that social media shouldn’t be the ‘arbiter of truth’, despite a long history of his company’s policy of downgrading, labeling or removing content, including recent misleading ads from Trump’s reelection campaign. After Zuckerberg’s interview aired on the 2nd of June, the stock took a hit, dropping 2.8% across 2 days.
Additionally, dozens of employees staged a virtual walk-out on June 1 in protest against the company’s stance on misinformation. This walk-out highlights the divisions within the company itself, with employees citing disgust at the lack of follow-through on maintaining its own policy on messages of violence.
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If a reform happens, Facebook could be forced to censor more and more content, while legal costs could massively increase, which has been a problem in the past. Facebook spent $10.5 billion in legal fees in 2019 alone, and Zuckerberg won’t want his shareholders to see that increase.
Twitter has not seemed phased by the potential impact of Trump’s executive order; indeed, it has only served to increase efforts to encourage fact-checking. For example, Twitter has recently begun labeling 5G conspiracy theory tweets in an effort to combat misinformation in addition to prioritizing accredited information about COVID-19.
Interestingly enough, by taking even a modicum of responsibility for the content that its users are posting, Twitter is doing exactly what Section 230 reform campaigners have been aiming to achieve for a long time now. It could also prove to improve user trust in Twitter as a platform, which should help increase its daily active user count, already growing 20% in 2019 alone.
Twitter’s stock has not been overly affected by the ongoing feud, despite a 6% dip over the 2 days from the original labeling, Twitter has since recovered and investors have shown bullish behavior — making up its loss by the 3rd of June and bringing it back up to pre-corona crash levels. With the feud on a back burner for now it is worth keeping an eye on for the future as lawsuits against the executive order are taken to court.
Companies such as Snap (NYSE: SNAP), Pinterest (NYSE: PINS), and TikTok would also have to look into their own censorship policies if the executive order is deemed as lawful. Snapchat and TikTok are video-based social media platforms that would require some more costly A.I. programs to help regulate content. Experts have stated it would be many years before AI is developed enough to replace the human content moderators, if at all. Until then, hiring costs will increase.
Snap actually saw a 24% rise in its stock price between May 27 and June 10. Investors are more interested in this company and the likes of TikTok as they have had less exposure during this period. Pinterest also saw a 16% stock rise in the same period as a company that exists as a platform to create project mood boards. It is the happy, zen member of the social media family, less likely to attract any controversy.
Should you still invest in social media stocks?
Social media companies are definitely still worth investing in and whilst the lawfulness of the executive order is being disputed, social media giants still have immunity and the right to moderate their own content in any way they see fit. This is a sector that will continue to grow globally even if restrictions are eventually put in place in the U.S.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above. Read our full disclosure policy here.
Financial Writer at MyWallSt
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