The kick-off of 2021 was tough for many tech stocks. After staging impressive rallies in the second half of 2020, many stumbled to start off the new year. Twitter (NYSE:TWTR) was no exception. After being hammered during the market crash last March, Twitter stock rallied to end up closing off 2020 up 68%.
However, it started 2021 on a downward note. That slide accelerated last week after Twitter permanently suspended President Trump’s account. At this point, TWTR is down over 17% so far in 2021.
That raises big questions for potential investors. Just weeks before this episode, Twitter stock had been trading at all-time highs, closing just under $56 on Dec. 18. Now under $46, is TWTR a buying opportunity? Is it a stock pushed to lows by a controversial move that will soon blow over with a new administration? Or has Twitter put itself in the crosshairs, making itself a target for future government action?
Twitter Bans Trump, Twitter Stock Slumps
On Jan. 8, Twitter posted the following message:
After close review of recent Tweets from the @realDonaldTrump account and the context around them — specifically how they are being received and interpreted on and off Twitter — we have permanently suspended the account due to the risk of further incitement of violence.
President Trump’s account had already been temporarily suspended in the aftermath of the Jan. 6 riots at the U.S. Capitol. News that the suspension was permanent had an immediate impact on Twitter stock. It closed down 6.4% the next trading day.
Investors are worried about the potential impacts of the ban. These include users leaving or losing interest, and a hit on advertising revenue (after a loss of users, or because of boycotts). There’s a possibility accusations of censorship over the ban and events leading up to it could lead to government investigation.
Adding to Twitter’s Regulatory Worries
That threat of government action has been hanging over the company’s head for several years. Social media companies — including Twitter — have been under investigation for issues including bias, censorship, and the potential misuse of their platforms by bad actors to influence election outcomes. It seems like every time Twitter CEO Jack Dorsey faced questioning before government committees, Twitter stock would take a hit.
The threat of lawsuits is one thing. Close scrutiny over a major event like the one that has been unfolding over the past couple weeks ratchet up the potential for regulation. Katie Fallow is a senior staff attorney at Columbia University’s Knight First Amendment Institute. As the fallout from Twitter’s Jan. 8 move continued, she told ABC News there’s now another angle the company should be concerned about:
Some people have called for (applying) antitrust law to the social media platforms on the idea that there’s essentially a monopoly on the speech environment …
There are few scenarios where increased government oversight would be good for Twitter.
Bottom Line on Twitter Stock
The company had seen its shares downgraded early last year, but the most commonly cited concern was over the pandemic’s potential to hurt the company’s advertising revenue. For example, in April, J.P. Morgan analyst Doug Anmuth wrote:
Twitter’s near-term revenue decline could be steeper than for others given ad challenges coming into the crisis, heavy dependency on product launches/events/sports, and high exposure to brand advertising.
After a strong rally in 2020, TWTR shares are again falling. This time the concern is the potential ripple effect of the company banning President Trump from its platform.
It’s clear that many analysts are taking a wait-and-see approach on Twitter stock. Among the investment analysts tracked by The Wall Street Journal, TWTR has a consensus hold rating. That being said, a significant number (11 of 38 analysts) expect this episode to blow over and are recommending their clients buy Twitter stock.
Personally, I’m cautiously optimistic, but I am worried about Twitter’s user growth. It was already on shaky ground and the platform is likely to see an exodus of users as a result of the Trump ban.
In addition, love him or hate him, President Trump was a lightning rod for Twitter interaction. With him out of office and banned from the platform, the amount of time people spend interacting with Twitter could take a hit. So count me in the wait-and-see camp, at least for a few months.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.