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Point/Counterpoint: Social Media Bulls Vs. Bears

Stock MarketsJun 06, 2020 03:08AM ET
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© Reuters.

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. This is Point/Counterpoint.

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”.

Point/Counterpoint: Social Media Bulls Vs. Bears
 

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Comments (6)
Kaveh Sun
Kaveh Sun Jun 07, 2020 12:21PM ET
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If u bought twitter,snap since their ipo, u lost tons of money.
Kaveh Sun
Kaveh Sun Jun 07, 2020 12:17PM ET
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Fb, snap charts look strong. Google is near all time high. Twitter is weak. Fb is the best choice if u have to pick 1 of them.
Gian Carlo Orlandi
Gian Carlo Orlandi Jun 07, 2020 7:18AM ET
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So it turns out that Covid is positive for markets and the new “liberal” lesson is that you can print all the money you need to save big financial institutions and companies. Just don’t print money in case all you need to do is saving is people from poverty.
Alex Huynh
Alex Huynh Jun 07, 2020 2:21AM ET
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I never sign up with Twitter or Snapchat. what it call freedom of speech. just a political. in America no free lunch.
Henry Main
Henry Main Jun 06, 2020 12:11PM ET
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Great write up. I agree. Makes me glad I bought facebook instead of twitter
Cameron Sedgemaster
Cameron Sedgemaster Jun 06, 2020 12:11PM ET
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But FB is up 69% from covid lows and TWTR is up 74% from covid lows. I would argue Twitter has more room to run as well. Gap fill at $38 get back to pre-pandemic levels and huge user growth will excel ad revenue. Check how Twitter is 1 in the app store for News apps.
Kaveh Sun
Kaveh Sun Jun 06, 2020 12:11PM ET
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Cameron Sedgemaster twitter went down too much, ofcourse the retrace is faster. If u hold twtr since ipo, u lost lots of money.
Emanuel Dabah
Emanuel Dabah Jun 06, 2020 6:12AM ET
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Market will never stay in bear territory more then 2-3 months due to economic reason ....  the FED will print money us much as needed....  the only chance to see this market going down is geopolitic event ..... every one with little common sense know that QQQ is trading 50% above it's real value.... SPY is totally unbalance (AMZN AAPL GOOG MSFT FB) are 20% of SPY ...... now came the neo liberal with new theory  of no problem of printing money in crises ...... I am in Gold the cheaper it go the more I will buy.....
Aristides Ledesma
Aristides Ledesma Jun 06, 2020 6:12AM ET
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So you recomend to buy gold ? Not using inorganic money
Adam Br
Adam Br Jun 06, 2020 6:12AM ET
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The fed has De-Risked the market, it will only ha e affect on long term security yields. They go lower and lower every year.
 
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