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If You Think Facebook Stock Is Immune to Regulation, Think Again

Facebook stock could suffer as congress toys with more rules

By James Brumley, InvestorPlace Feature Writer

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facebook stock

Source: The Crunchies! via Flickr

The whispers regarding the potential regulation of social media sites like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) have been circulation for so long that owners of Twitter and Facebook stock have mostly stopped listening.

The prevailing thought i that if it was going to happen any more than it has via the EU’s new GDPR (General Data Protection Regulation) imposed last year, it would have happened by now.

Investors would be wise not to remove the idea from their radar just yet, however. The possibility has never gone away, and more troubling than that, Facebook manages to continue adding reasons for the regulation is says it doesn’t want.

Louie Gohmert and Facebook Stock

The name Louie Gohmert may or may not ring a bell for anyone outside of Texas, though it’s a name Facebook stock owners may want keep tabs on. In December the Republican Representative from the Lone Star State introduced H.R.7363, a bill that amends section 230 of the Communications Act of 1934.

Neither the bill nor the section of the Communications Act it aims to amend are familiar to the average consumer. But, they arguably should be.

Section 230 of the Communications Act of 1934, in its essence, protects internet service providers from liability in merely passing along information found on the information superhighway. The greater perceived risk at the time the amendment was put in place in 1996 was overreach from internet connection providers that might, in an effort to sanitize the web, inadvertently quell free speech.

The catch? To earn this immunity, a middleman (with some exceptions like criminal material) can’t pick and choose which information it delivers to individuals.

It was a law created at a time, however, when social networking didn’t exist. The intended amendment to the law adjusts accordingly, requesting that:

“…an owner or operator of a social media service that hinders the display of user-generated content shall be treated as a publisher or speaker of such content, and for other purposes.”

The text means little to the layperson, on the surface. But, Gohmert’s statement accompanying the introduction of the bill sheds more light on the intent:

“Representatives of social media companies have testified in Congressional hearings that they do not discriminate against or filter out conservative voices on their platforms. But for all their reassurances, the disturbing trend continues unabated. Employees from some of these companies have communicated their disgust for conservatives and discussed ways to use social media platforms and algorithms to silence and prevent income to conservatives.”

In short, this is a bill that that says any internet company prioritizing certain kinds of information over others in effect becomes a “publisher or speaker,” with all the liabilities thereof.

Facebook Stock and Potential Regulation

Support for the measure, which is currently in the hands of the House Committee on Energy and Commerce, is mixed. The premise makes sense, though broadly speaking, politicians from both parties and from both chambers are wary of new laws that could result in political backlash.

In this case, the most significant risk is not knowing how such a measure might be perceived not just by internet companies, including Google parent Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), but voters as well; some constituents may like the idea that some sorts of speech are being suppressed. Others may fear any sort of government meddling altogether.

Nevertheless, at least some ranking members on both sides of the aisle are on board with the premise.

“If they continue to act as if we couldn’t possibly deign to regulate them, they’ll get regulated and they’ll be unpleasantly surprised with how swiftly it may happen,” said Delaware Democrat Senator Chris Coons in November, speaking mostly of Facebook, but also of others in similar business.

Senator Mark Warner commented during a hearing that involved Facebook COO Sheryl Sandberg and Twitter CEO Jack Dorsey, “I’m skeptical that ultimately you’ll be able to truly address this challenge on your own. I believe Congress is going to have to act.”

The statements sound like more than mere posturing. H.R.7363 would be a first step down that path.

Looking Ahead for Facebook Stock

Realistically speaking, it seems unlikely H.R.7363 will become law. Lawmakers, ironically enough, are at least somewhat intimidated by influence of the very websites and search engines they’re proposing to regulate with laws that could peer deep into the industry’s algorithms.

But, a failure to pass H.R.7363 in and of itself won’t inherently be a victory for Facebook.

Once lawmakers embrace an idea, new bills that recycle the underlying premise for a failed bill take shape. The very fact that such a proposal has been put in place at all should concern Facebook’s investors.

They should be worried, not because it might introduce more conservative-minded stories into users’ newsfeeds, but because the first successful layer of regulation makes it subsequently easier to add another and another.

Then again, with reports surfacing that Facebook may have been charging children for access to online games without parental consent, it’s difficult to argue the social networking site didn’t do it to itself.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2019/01/facebook-stock-is-immune-to-regulation/.

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