Twitter stock sinks as Trump prepares executive order targeting social media

Equities

Twitter stock dived earlier today on the deepening feud between the platform and president Trump, which could see social media slapped with new regulations.

Twitter was down over -4% in pre-market trading, but has since pared losses to -2%. Facebook had also fallen nearly, trading down -2% before the opening bell, but has now edged into positive territory.

The losses come after the White House announced that Trump would sign an executive order today targeting social media companies, with the aim of addressing what he alleges is bias in their strategies for content moderation.

Why is Trump targeting Twitter?

A few days ago Trump posted a tweet which contained several claims about postal ballots. Many states are expanding their postal balloting because of concerns that in-person voting could lead to a spike in Covid-19 infections.

Source: Twitter

Twitter used its fact-check feature on the President’s tweet. A small blue exclamation point is displayed under the tweet, alongside a link that reads: ‘Get the facts about mail-in ballots’. The link redirects to a page calling the claim ‘unsubstantiated’ and countered assertions in a section entitled ‘What you need to know’.

Unsurprisingly, Trump isn’t happy about it. The president has accused Twitter of interfering with free speech and censoring conservative voices, and even of interfering with the 2020 presidential election.

What can Trump’s executive order do?

According to CNBC, the order would direct the Federal Communications Commission to review certain regulations under the Communications Decency Act. The law in question, known as Section 230, is often criticised by both sides of the political spectrum.

It states that online platforms are not liable for the content that their users post, and also that they can moderate “objectionable” material without being viewed as either a publisher or a speaker under the law. Some conservatives had claimed this allows the platforms to remove views that they disagree with.

The law was originally introduced to protect growing tech companies. Platforms like Twitter and Facebook would never have made it off the ground if they could be held liable for user’s posts: they’d have been sued into oblivion a long time ago. But having to vet every post would be impossible: currently almost 9,000 tweets are posted every second.

As we noted this morning, Trump can put more of a regulatory squeeze on companies and raise their costs. He could push for changes to the current laws so that it is easier for regulators to take action against tech companies who are deemed to be violating the free speech of their users.

More pain to come for Twitter stock as US election approaches?

While Twitter and Facebook have recouped the worst of the day’s losses, it could be the start of an uncomfortable period for the platforms. With the US election just a few months away, a lot of content on both sides will likely be reviewed, challenged, and removed by social media companies. When Republicans are the ones being censored, Trump’s ire will grow.

Trump could see going after social media companies as another way to rally his fanbase, but it’s worth remembering that the president has reaped the benefits of the platform. He has 80 million followers – any action of his that materially damages the platform also damages his own reach.

Trump’s actions represent a new downside risk for social media stocks. You can trade the top companies in the sector as a single CFD with our unique Social Media Blend.

Where next for TSLA after Musk’s ‘price is too high’ tweet?

Equities

Tesla CEO Elon Musk knocked $14 billion off the value of his own company on Friday after tweeting that he thought the stock price was too high.

Musk posted “Tesla stock price too high imo” during a bizarre tirade of messages, that included railing against lockdown and sharing lyrics to The Star Spangled Banner. TSLA dived over 12% in response.

Musk is no stranger to expensive tweets. He had to pay the US Securities and Exchange Commission $20 million in 2018 after posting that he was planning on taking the company private again. He suggested a premium of $420 and that funding for the move was secured, causing the stock to leap over 6%.

The SEC alleged that, “in truth, Musk knew that the potential transaction was uncertain and subject to numerous contingencies.  Musk had not discussed specific deal terms, including price, with any potential financing partners, and his statements about the possible transaction lacked an adequate basis in fact.”

Tesla was also required to pay a $20 million settlement, remove Musk from the board, and implement new procedures and controls with regard to the CEO’s Twitter account. An in-house lawyer for Tesla is supposed to approve his tweets relating to company financial matters.

Musk breaks SEC settlement guidelines with TSLA tweet?

These controls clearly weren’t working too well on Friday – in response to an email from the Wall Street Journal asking if the messages had been authorised or vetted, Musk simply replied “No”.

Is Musk facing another spat with the SEC? Potentially. It’s unclear whether commenting on the stock price counts as a ‘financial matter’, and therefore whether it should have been vetted before it was posted. However, if the SEC deems that it does count, Tesla’s board of directors could also be in trouble, as it’s the company’s responsibility to see that these compliance procedures are followed.

A small fine here or there is nothing a billionaire need concern himself with, but the danger for shareholders is that the CEO and the board need to be on top form during these extraordinary times. The last thing a company like Tesla needs is for its CEO to be fighting with the US authorities – or the board of his own company.

Where next for Tesla shares?

Tesla shareholders have always had to contend with Elon Musk’s erratic behaviour.

In October 2013 he claimed “the stock price that we have is more than we have any right to deserve” while opening a new showroom in London. He told reporters in September 2014 that “I think our stock price is kind of high right now, to be totally honest”.

In February 2015 Musk took a different angle, claiming that Tesla could reach the same market capitalisation as Apple had ($700bn at the time) within 10 years. He repeated the claim in May 2017, but a couple of weeks later was back to stating that the current market cap was “higher than we have any right to deserve”.

Even if Musk and Tesla escape repercussions from the latest tweet, this is just the latest in history of tweets from the CEO on the company’s share price. Traders and investors need to be prepared for unexpected surprises.

Find the latest Tesla ratings with Analyst Recommendations

Tesla currently holds a consensus “Neutral” rating amongst Wall Street analysts and the average price target of $621.33 represents a 14% downside on the current share price.

Many analysts updated their ratings on Tesla on April 30th – the day before Musk’s tweet about the share price. Check the Analyst Recommendations tool to see whether the CEO’s comments change the view on the Street.

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