Feature: Social-Media Stocks Are Falling. There’s More Scrutiny After the U.S. Capitol Attack.

Social-media stocks are sagging on Monday as they face new scrutiny for their roles in last week’s deadly attack by supporters of President Donald Trump on the U.S. Capitol as Congress was in the middle of certifying the Electoral College win for President-elect Biden.

After months—years—of pressure,

Twitter

(ticker: TWTR) on Friday finally suspended President Trump’s account, and removed all of his previous tweets, citing concerns that he was inciting violence.

Facebook

(FB) has suspended him from posting at least through the end of his term. Meanwhile,

Amazon.com’s

(AMZN) Amazon Web Services, or AWS, on Sunday night suspended its relationship as web host for the right-wing chat service Parler, knocking it off the internet. Both

Alphabet’s

(GOOGL) Google and

Apple

(AAPL) had already removed the Parler app from the app stores. Visits to parler.com now yield a “this site can’t be reached” error message.

Bernstein internet analyst Mark Shmulik thinks there could be ramification for the companies in Washington in 2021.

“While the week will certainly be remembered for far more shocking events, it’s not lost on us that we may be at the precipice of a change to long-standing Internet rules of engagement,” he writes in a research note Monday.

Shmulik thinks a pick-up in potential regulatory activity seems likely.

“We expect much of the activity to focus on Section 230, though this misses the point in contention,” he writes, referring to the provision of federal law that protects online businesses from being sued over content posted by users.

But he notes that changing the liability laws doesn’t solve the issue of what content is and isn’t permitted. “It’s telling that Facebook has been vocal about seeking regulatory guidance here, going so far as to set up their own Oversight Board in absence of formal regulation,” he notes. “What we do know is that Internet companies likely don’t want to be making these types of decisions. Incremental moderation may be welcome but it’s not cheap and could benefit Facebook that already employs a moderation army [that is about] 6 times larger than Twitter’s workforce.”

As for whether the social-media companies have the right to block Trump or others from their platforms, his answer is that “of course” they can.

“Private companies with clear terms and conditions can remove and suspend violators as they deem appropriate,” he writes. “On the social-media front, detractors will point to Free Speech and moderation subjectivity—it’s not hard to find other social-media accounts breaching these same terms and conditions—yet no other account has the authority (as President of the United States), nor the reach (6th most followed account on Twitter) of Donald Trump.”

As for risks, he notes that there could be a slight user decline for Twitter, but adds that there could be other offsets on the advertising side. “A Trump ban could offer an incremental ad revenue catalyst,” he writes. “’Trump’ is the second-most blocked keyword by advertisers behind ‘Coronavirus’….Remove ‘Trump’ and there’s more brand-safe inventory to go around.”

Evercore ISI analyst Benjamin Black points out in a research note Monday that there are now new and more complex questions around internet regulation. For instance, he asks whether Jack Dorsey as CEO of Twitter should ban potentially dangerous groups, while Dorsey as CEO of Square should be providing payment services to the very same groups. “What we know for sure is that the answer is far more about politics and philosophy than it is about economics,” Black writes.

Black raises more questions than answers—but the questions are interesting ones. For instance, he asks whether social platforms such as Facebook, Twitter, and Alphabet’s YouTube should be subject to different moderation responsibilities than infrastructure providers such as AWS, the app stores, and payment processors.

He also asks whether individual nation states are capable of governing social platforms, “given incentives for parties in power to abuse this authority to further their own political ambitions.” Black adds that while the same issue has cropped up in other countries, “the spectacle of rioters in the U.S. Capitol as called on by a sitting U.S. president crystallizes the shortcomings of nation state-led regulation.”

As for the potential for breaking up tech giants, he notes that those moves would do little to address abuse of the platforms. “For example, if Facebook and Instagram were separated, it wouldn’t have reduced rioters’ ability to organize,” he notes. “Alternatively, if AWS and Amazon were separated, it wouldn’t reduce Amazon’s ability to stop providing infrastructure to Parler. In our view, this creates a key challenge for regulators: the most frequently discussed solution does little to directly address key social issues.”

In Monday afternoon trading, Twitter stock is off 5.3% to $48.77, bouncing back from an earlier drop of 10%. Facebook stock is off 2% to $262.20, Alphabet stock is down 1.6% to $1,769.72, and Amazon stock is off 1.1%, to $3,146.33.

Write to Eric J. Savitz at eric.savitz@barrons.com