What Fallout for Social Media After the US Riots?

Will the January riots in Washington DC affect social media stock prices? Morningstar analysts think the effects are likely to be minimal 

Ali Mogharabi 11 January, 2021 | 4:46PM
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Trump Rally Jan 2021

We expect responses to the January 6 riot at the US Capitol will have only a slight impact on the legal and political standing and operations of social media companies like Twitter, Facebook, Snap , Pinterest, and Alphabet.

We do not believe the decisions to eliminate President Donald Trump’s personal accounts or moderate Trump-related content more aggressively will result in the repeal of or drastic changes to Section 230 of the Communications Decency Act, which offers immunity from liability for Internet content.

Twitter has taken the biggest hit of these companies in terms of app download rankings. In our view, its decision to permanently delete Trump’s personal account will modestly affect the platform’s network effect. On the other hand, we think that with increasing content moderation, brand advertisers may view Twitter and Facebook apps in particular as safer to market on.

Google’s decision to no longer provide the Parler app through its Google Play app store appears to be in line with the company’s policies. However, the death of the Parler app due to Amazon’s decision to no longer host it on its cloud creates slight risk for Google’s cloud business as decentralization may become a topic of cloud conversations.

We have not made any changes to our projections and fair value estimates for Facebook, Alphabet, Twitter, Snap, or Pinterest. We continue to view Twitter, Snap, and Pinterest as overvalued. We recommend waiting for a slight pullback in Alphabet and Facebook before allocating new capital to those names as they are currently trading in 3-star territory.

Are Companies Legally in the Clear?

Legally, in our view, social media companies currently have strong support from Section 230, which we think is likely to remain intact under the new administration and Congress. While the riot was not expected, its occurrence supports the argument that various accounts and/or content on social media platforms may have incited the break-in and violence at the Capitol. For this reason, accounts were deleted or made inactive, and content was controlled a bit more. Even with the more aggressive moderation of content and accounts, including Trump’s personal account, the companies are still viewed as distributors and not publishers, which means they still have the Section 230 protection from liability.

With regard to claims that the companies’ actions violate the First Amendment guarantee of free speech, we think the same justification used in the Section 230 argument is applicable. If some accounts on Twitter and Facebook posted content that stoked the violent acts on January 6, this speech is akin to yelling “fire” in a crowded theater. We believe that these companies, as privately owned businesses, are well within their rights to restrict this type of speech.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Alphabet Inc A2,638.00 USD-1.59Rating
Facebook Inc A367.81 USD-1.25Rating
Pinterest Inc74.29 USD-2.88Rating
Snap Inc Class A73.97 USD-3.08Rating
Twitter Inc68.33 USD-0.52Rating

About Author

Ali Mogharabi  is an equity analyst for Morningstar

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