Now that Twitter (NYSE 🙂 has started to censor US President Donald Trump's messages, investors are wondering if this fight will have financial implications for the microblogging platform.
Twitter added links to a few tweets from President Trump last week that declared California's plans to send mail-in ballots as "significantly fraudulent" and as "counterfeit" elections. The links, as part of the company's efforts to monitor political statements, led users to a page disputing Trump's claims.
"Fact checkers say there is no evidence that mail-in ballots are associated with voter fraud," the company concluded, citing news reports from media outlets.
Later, on Friday morning, Twitter added a message to Trump's tweet about the riots that took place in Minneapolis, saying the tweet violates Twitter's rules about "glorifying violence."
These actions sparked a swift response from Trump, who sees this social media censorship as an affront to freedom of expression. The biggest potential threat to Twitter and other social media companies comes from the Presidential presidential order issued last week in retaliation for, among other things, the factual control of Twitter. The order aims to make major changes to the way social media platforms work.
The order is in fact aimed at redesigning the Communications Decency Act (Section 230), which provides social media platforms with legal immunity from the content posted by users on their sites.
Ad Revenue Under Threat
While lawyers don't believe the warrant survives a chance for a judicial battle, it can add to the pressures on social media giants are already being scrutinized for spreading misinformation and inciting hatred. .
According to a report in the Wall Street Journal:
"Controversy drives engagement on social media platforms, so vacuuming the president doesn't necessarily have to be bad for Twitter's short-term results."
"But threats of legal action by the government could put more pressure on social media shares, raising existing concerns about privacy investigations and antitrust pressure."
These concerns explain why Twitter stock has fallen by about 6% in the past week.
However, it closed at $ 31.89 on Monday, up nearly 3% from the session, although little changed for the year.
In addition to US lawsuits and political controversy, Twitter cannot remain selective in its approach to censoring content it deems harmful. It must enforce its editorial opinion across the board and worldwide. That means additional costs for the company at a time when ad revenues dried up during the COVID-19 pandemic.
And all this controversy takes place as CEO Jack Dorsey continues to try to navigate his and his company's relationship with activist investor Elliott Management Corp., known for his aggressive actions to drive out underperforming CEOs. Indeed, Dorsey's position was threatened earlier this year before he and the investment company reached an agreement in March that, according to Bloomberg, "set ambitious targets for day-to-day active users, accelerated revenue growth and increased market share in digital advertising."
In Twitter's Q1, released April 30, the San Francisco-based company showed that quarterly sales rose only 3%, the smallest increase in more than two years, as ad spend was hit by the pandemic . From March 11 alone to the end of the quarter, sales plummeted 27% from a year earlier, and a similar pattern occurred in April.
Bottom Line
When the dust finally settles down, it may not be the Trump administration that has a significant impact on Twitter, even though some efforts to to reshape the social media landscape. On the contrary, at least in the short term, Twitter could be under additional scrutiny along with cost increases as it tries to show that its censorship policy is not Trump specific.
