Yesterday, Twitter (NASDAQ:TWTR) CEO Jack Dorsey and Facebook (NASDAQ:FB) COO Sheryl Sandberg faced questioning by the Senate Select Committee on Intelligence. Key topics included what their companies were doing to protect against election interference by foreign powers, and whether their platforms were biased against conservative viewpoints. Meanwhile, Alphabet (NASDAQ:GOOGL) elected not to send CEO Larry Page or Sundar Pichai, CEO of the Google division and ended up represented at the hearings by an empty chair.
At the end of the day, both companies went on record with the efforts they are taking to clean up their platforms. However, they definitely aren’t out of the woods yet. After the session was over, the Justice Department warned that social media companies may be “intentionally stifling the free exchange of ideas.” Twitter stock closed down over 6% yesterday and Facebook was down 2.33%, while Alphabet escaped relatively unscathed, closing down 1.01%.
What Went Down With TWTR, FB (and GOOGL) Yesterday?
Without getting into too much detail, the U.S. government is increasingly worried about the potential for social media platforms like Twitter and Facebook to influence elections. The issues range from accusations of bias against conservative users to allowing foreign powers to influence voters through promotion of false information using fake accounts.
This all rolls back to discovery that Russia used social media to influence the 2016 elections. Facebook uncovered 2,500 Kremlin-backed accounts that exposed 126 million Americans to misinformation, while Twitter discovered some 4,000 Russian spam accounts. Google has been under suspicion over paid political ads and search engine bias — but has been trying to keep from being lumped in with the social media networks (thus its refusal to send CEO Sundar Pichai).
Hanging over all this is the threat of government regulation, something that would likely have a significant impact on operations, users and revenue.
Appearing before the Senate Select Committee on Intelligence were Twitter CEO Jack Dorsey and Facebook’s COO Sheryl Sandberg. Google offered to send its legal counsel instead of an executive. The company was turned down, and represented by an empty chair in the hearing.
What Are the Companies Doing to Address Concerns?
Both Twitter and Facebook have been implementing measures to address concerns, and they listed these measures in their testimony. For example, TWTR now has an Ad Transparency Center that lets users search to find who paid for an ad or promoted Tweet on its platform. The company is actively combatting bots and every week, challenges eight to 10 million suspicious accounts. Facebook has been focused on preventing election interference, including measures like hiring moderators and fact-checkers to review content, killing fake accounts and rolling out its own ad transparency feature.
Why Was Twitter Stock Hit So Hard
After a very long day of testimony — which also included TWTR’s Jack Dorsey alone facing the House, Energy and Commerce Committee — Facebook, Google and Twitter stock all closed down. But Twitter stock was hit much harder than the others, shedding 6.06% of its value.
As a recap of the events in Reuters points out, the reason TWTR stock got hit so hard likely boils down to the fact that it lacks the multiple revenue sources the other companies have, and also lacks development resources to create new applications. In other words, Facebook has other products and divisions like Instagram and Oculus (and maybe even some hardware in the works), but if Twitter’s operations are impacted it has no easy way to make up for lost revenue.
The only sure thing that came out of yesterday’s hearings, is that this is not over yet. Twitter and Facebook did a good job of making the case they are cleaning up their platforms. Google made the point that it shouldn’t be lumped in with social media.
But with U.S. President Donald Trump accusing the social media companies of meddling in both the 2016 elections and the upcoming 2018 midterm elections, and the Justice Department getting involved, the worst could be yet to come. The social media companies — and Google — face increasing scrutiny and the potential for government regulation. While all this plays out, expect more uncertainty for investors and more hits like the one Twitter stock took yesterday.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.