Social Media and FANG Companies Could Cause a Stock Market Crash
Remember The Buggles? They recorded the 1979 hit song: “Video Killed the Radio Star.” In 2018, the band might want to adapt the catchy tune and idea to a new version called “Twitter Killed the Tech Stocks (and caused a stock market crash in the process).”
And what’s the poison that’s killing tech—more fashionably called FANG—companies (Facebook Inc. (NASDAQ:FB), Amazon.com Inc. (NASDAQ:AMZN), Netflix, Inc. (NASDAQ:NFLX), and Google—aka Alphabet Inc (NASDAQ:GOOG))?
One word: Censorship.
And the company that most embodies the growing censorship risk is Twitter Inc (NYSE:TWTR). Twitter stock is leading the rest of its tech and social media competitors to the edge of a stock market crash precipice.
It seems that not one day passes without a story blowing up about whom Twitter is blocking from using its service.
Twitter Setting Limits on Free Speech
President Donald Trump himself has appeared in Twitter’s censorship viewfinder. Certainly, various progressive organizations have put pressure on Twitter to do so. (Source: “Suspend or Cancel Trump’s Twitter Account,” Change.org, last accessed August 8, 2018.)
But others who have been blocked by Twitter, especially in 2017 and 2018, have shown how precarious Twitter has become. (Source: “Twitter suspensions,” Wikipedia, last accessed August 8, 2018.)
It’s become ever more complicated to decide just what free speech is and what role Twitter should play in that debate.
Many Twitter users and followers, with justification, demand that Twitter serve as a completely open and censorship-free platform. Others disagree.
And that’s where the danger to the Twitter business model lurks. Censor too much and you self-destruct the Twitter concept. People will simply stop using it.
On the other hand, controversy sells, but too much controversy attracts the ire of other users, who start demanding the blocking of accounts.
It seems that the moment of imbalance between the pro-censorship and “free speech above all” camps has arrived.
Censorship Is Not Merely Affecting Twitter
Facebook and Snapchat, which is owned by Snap Inc (NYSE:SNAP), could easily be affected by the Twitter conflict. As a matter of fact, they have been affected already.
Snap stock is near its record low from May 2018, and Facebook stock recently suffered the biggest one-day tumble of any stock in Wall Street history, losing $119.4 billion in market cap.
In 79 AD, the citizens of Pompeii dismissed a couple of tremors preceding Mount Vesuvius’s eruption and kept on going about their daily business.
Until, of course, it was too late.
In Facebook’s case, its stock dropped like a bombshell, less because of unsatisfactory earnings and much more because of unsatisfactory growth.
Facebook’s ever more determined plans to review posts, reduce fake news, and police conversations will have the effect of diminishing its appeal.
Twitter Malaise Spreading Throughout FANG Stock Universe
Twitter and the other social media companies have been infected with the same virus.
That virus will, without doubt, taint the rest of the FANG and tech stocks, bursting the bloated tech bubble and causing a major stock market crash.
The FANG stocks, more than any other group of stocks, have attracted many investors to the market. Their popularity and media hype probably drew many inexperienced and first-time traders to invest in the stock market.
Indeed, that’s why the FANG companies have infused such vulnerability into the entire financial system.
The masses of investors who have been mesmerized by the power and wealth of social media companies and their CEOs won’t have any idea where to invest after the FANG stocks fall from their lofty valuations.
Then There’s the Internet Factor Itself
The value of the FANG stocks has increased in the past few years because they enjoyed near-monopoly power in their field. Profits have increased in successive quarters for the past few years.
But now, social media markets have become saturated. China might offer a billion more potential users, but Facebook won’t be allowed to operate in China any time soon—especially in the midst of a U.S.-China trade war.
In the West, meanwhile, just about anyone who uses the Internet regularly boasts a Facebook account. The same goes for Twitter.
The rising censorship, meanwhile, will start to correct the saturation, diluting the use of social media.
Users might start promoting smaller platforms as the entire concept of social media disintegrates into multiple echo chambers, given that the very idea of disagreement—and offense—has become such anathema.
What’s Good for the Goose Is Good for the Gander
The same thing about Facebook applies to Twitter, Netflix, and even Google. But of all the stocks, the most vulnerable financially to the effects of censorship is Twitter.
Twitter, more than any other social media platform, relies on and needs users to express themselves freely and impulsively. But Twitter has taken to banning, blocking, and censoring.
Who wants to invest their creative and expressive efforts in tweeting when, at any moment, a user demands that he/she be banned for violating ever more fickle rules?
So long as social crusaders keep going after social media, as a result favoring censorship, they will dissuade new and existing users.
Twitter has already seen a decline in users, and more will leave in the coming months. The company seems to be heading into a deep stall, dragging down much of Wall Street in its wake.
And That’s Nothing Investors Will Want to Tweet About
In short, if trends continue, users will abandon the big social media companies in droves. Fewer users mean fewer advertisers and less revenue.
Amazon, however, might resist. It has more growth potential because of its constant diversification in what it chooses to sell online.
Should the next quarters for Facebook confirm a drop in new user guidance, it will take a “Noah” to survive the financial flood from the next stock market crash.