By Yasin Ebrahim and Kim Khan
Investing.com - Social media companies were further under the presidential microscope this week.
The intersection between politics and responsibility arrived (ironically is too easy and misused here) when Twitter announced it would fact check some tweets form the White House.
Snapchat owner Snap (NYSE:SNAP) also announced a measure against the administration’s content.
Is now a good time to go for social medial stocks?
Yasin Ebrahim argues that stocks in the crosshairs of the president and under the microscope of regulators are best left alone during this rally.
Kim Khan contends that the market is going up, with or without these stocks, and also that the White House is impotent to really impact them.
Both authors agreed President Donald Trump may create his own platform, win or lose, called Trumpeter.
The Bear Case
In the last few weeks, Trump has waged war on social media companies, with Twitter, in particular, drawing much of the president's ire for fact-checking his tweets.
Trump hit back with an executive order to target the legal protection - section 230 of the Communications Decency Act - that shields social media companies from lawsuits over the content posted on their platforms.
"Republicans feel that Social Media Platforms totally silence conservatives voices," Trump said in a tweet. "We will strongly regulate, or close them down, before we can ever allow this to happen. "
The law, which has stood for over quarter of century, is unlikely to get overturned as it requires Congressional approval.
A victory for Trump would ramp up monitoring, compliance, and legal expenses for social media companies, but the costs would likely be immaterial, RBC Capital analyst Mark Mahaney said.
Yet, the attack on Twitter (NYSE:TWTR) does sharpen the lens of regulation on bigger players such as Facebook (NASDAQ:FB) and Google.
Facebook and Google are themselves are on trial over privacy and antitrust violations respectively. That could result in significant implications for the industry at a time when whispers of breaking up big tech are circulating, once gain.
The U.S. state attorneys general investigating Alphabet (NASDAQ:GOOGL)'s Google for potential antitrust violations are looking to push for the breakup of its ad technology business, CNBC reported on Friday, citing sources.
In March, Morningstar predicted that excessive fines and stifling regulations could hurt the value of Google and Facebook by as much as 15% and 11% respectively.
While social media companies have not seen investors hit the brakes just yet, the next few weeks, and months could be fraught with uncertainty.
A Congressional report on big tech expected to be released later this month and the upcoming November election could set the stage for a summer 'techlash' that will see social media companies on trial.
The Bull Case
Friday’s trading session is an opportune moment to argue the case for social media stocks. The Nasdaq's record intraday high did a more eloquent job than I could, despite the late decline.
Laugh at the “rising tide lifting all boats” cliché, but respect the Federal Reserve’s ability to push the major indexes up to where they were before the Covid-19 lockdowns is clear.
Twitter closed 3% higher, Facebook finished the day 2% up and Snap ended up 5.6%.
But let’s not ignore the cloud of government regulation hovering over those stocks. Trump’s vow to remove the Article 230 provision, where social media companies can be held liable for content on their platforms.
That’s been happening since last year. Is there any reason to think that the president will be more effective?
Breaking down the major public social media companies, only Twitter stands out.
If you were bullish on Snap before, you should be bullish on Snap again.
As soon as the company decided it would not promote the president’s tweets, Trump threw accusations that the company acted “illegally” to rig the “2020 election”
But the administration has supplied no more on the subject.
If you’re long SNAP, watch Kylie Jenner still, not the White House.
Moving on to Facebook, that’s another easy one to be bullish. CEO Mark Zuckerberg bends with the wind. He never met a controversy he couldn’t avoid and he called Trump to give the president support.
Any new legislation will favor Facebook.
That leaves Twitter, which decided to do to the president slightly less than it does to those who violate its terms of service.
Investors should agree the Twitter is adjusting to market forces. So many companies have now said they support the recent protests.
Fox CEO Lachlain Murdoch, no less, had this to say to his employees:
“This is time to the time for people to come together in their grief, work to heal, and coalesce to address”.