Mark Zuckerberg, CEO of Facebook [FB], Sundar Pichai, CEO of Google’s parent company Alphabet [GOOGL] and Twitter [TWTR] CEO Jack Dorsey appeared before the United States Congress a week before the US election to discuss Section 230 of the Communications Decency Act. Would a repeal or an amendment to the act affect Facebook, Twitter and Alphabet’s share prices? All three giants have thrived in recent months, with each one beating analyst estimates in their Q3 earnings reports.
The law, introduced to a fledgeling internet in 1996, shields such “interactive computer services” from legal liability for anything its users post, while simultaneously making provision for them to act in good faith to remove anything they consider offensive or objectionable.
A rare area of common ground between US president Donald Trump and US president-elect Joe Biden has been the need to update Section 230, albeit for different reasons. Trump wants the ability to stop the platforms from hiding his posts and labelling his claims “disputed” or “misleading”, or at least the power to sue them for it. On the flip side, Biden wants to limit the tech giants’ ability to publish hate speech under the guise of free speech without any sanction.
Alphabet’s share price has had a volatile 2020, but it did benefit from positive Q3 results. The firm recovered from a second-quarter year-on-year revenue decline to earn $16.40 per share in the third quarter, as its revenue leapt 14% to $46.167. In an earnings call, CEO Pichai said this was a reflection of “how valuable Google’s founding product Search has been to people”.
Facebook’s share price has had a marginally more positive year so far, after the tech giant recorded $21.47bn in revenue, up 22% year on year. Its EPS was $2.71 — almost 50% up on the forecast $1.91.
Meanwhile, Twitter’s share price benefitted from its $936m profit, which dwarfed the expected $777m and its $0.19 EPS trebled the forecast $0.06.
Facebook's Q3 revenue - a 22% YoY rise
Facebook, Alphabet and Twitter all appreciate the need to police the content of online posts. In a recent letter to shareholders, Twitter underlined its commitment to “combat misinformation and provide context”. Twitter recently introduced systems that prompt anyone retweeting a message the platform has labelled misleading to read a credible source, and also discouraged users from retweeting an article they haven’t read.
But the three CEOs did not exactly demonstrate a united front before the US Congress, which may hint at how concerned they are about the impact of any Section 230 revisions.
Dorsey, whose company is dwarfed by Facebook and Alphabet, told Congress that Section 230 was “the most important law protecting free speech,” and warned that taking away legal protection would harm the tech industry by preventing the emergence of new social media platforms and — in a sideswipe at his rivals — would leave “only a small number of giant and well-funded technology companies.”
Pichai urged the committee to “be very aware of the consequences those changes might have on businesses and customers,” while Zuckerberg seemed less concerned, actively calling on Congress to “update the law to make sure it’s working as intended,” adding that Facebook supported “the ideas around transparency and industry collaboration.”
Noises around reform do briefly flutter share prices. On 28 May, when Trump responded to Twitter labelling two of his tweets “misleading” by signing an executive order targeting social media companies, Twitter’s share price fell 4.4% and Facebook’s share price dropped 1.6%.
As the three CEOs spoke to Congress on 27 October, Twitter’s share price rose 4.7%, Facebook’s share price rose 2.2% and Alphabet’s share price went up by 0.9%.
Twitter's share price rise after Jack Dorsey spoke to Congress
But what of the longer term? Repealing Section 230 altogether may make social media companies much more careful in what they allow on their platforms, which would likely discourage users from posting and ultimately shrink the core business. Or it may, as Dorsey suggested, simply cement the position of the big two by making it too risky a sector for any competition to emerge.
Either way, tech share prices have boomed through the pandemic and are likely to lead a US market recovery. Targeted legislation to clip their wings may be seen by some as counterproductive while a tentative recovery continues.
Lawmakers may also take some time to argue over whether repealing Section 230 is unconstitutional when it comes to free speech. A number of individual court actions over the past 25 years have supported the law as it stands.
“A big giant like a Facebook or a Google can deal with much greater legal liability. They can afford all the lawyers it takes to fight court battles. Smaller companies? Not so much. Taking away [Section] 230 helps [Facebook] against competitors” - Mike Masnick, founder of Techdirt
According to Mike Masnick, founder of US blog site Techdirt, whatever happens will ultimately make no difference to a tech company as big as Zuckerberg’s.
“A big giant like a Facebook or a Google can deal with much greater legal liability,” he posted. “They can afford all the lawyers it takes to fight court battles. Smaller companies? Not so much. Taking away [Section] 230 helps [Facebook] against competitors.”
The law, he added, has been incorrectly seen as “some sort of special gift to Facebook in particular. Facebook doesn’t need it. The rest of us do.”