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Amid chaos in Washington, analysts hazy on social media's long-term future

Impacts from the U.S. Capitol siege have reverberated across social media, and analysts are weighing how the backlash regarding certain online speech about the event may impact platform usage — and revenues — going forward.

Following the deadly Jan. 6 riots in Washington, D.C., social networking site Parler Inc., which touts itself as an ideological alternative to Facebook Inc. and Twitter Inc., is fighting to stay alive as major tech vendors pull support due to what they said was an inadequate response by Parler to posts on its platform that promoted the violence. Meanwhile, Facebook, Twitter, and YouTube LLC — which all took steps to remove incendiary comments on their platforms, including taking down posts by President Donald Trump and, in Twitter's case, permanently banning Trump from its platform — are facing potential political and business headwinds of their own.

While analysts commended big tech's actions to clamp down on harmful content from Trump and other users following the Jan. 6 riots, they also cautioned that some of these decisions — particularly regarding diminishing Trump's access — might negatively impact platform usage.

Wells Fargo analyst Brian Fitzgerald in a Jan. 12 report lowered his price target on Twitter stock to $43 from $47, noting that the company's decision to ban Trump, whom Fitzgerald referred to as a "unique animating force for activity and engagement" on the site, could result in engagement headwinds that will likely persist.

The analyst predicted that at least 20% of Twitter's U.S. audience has "material" engagement with Trump's tweets and noted that Twitter has benefitted greatly from the earned media Trump has indirectly attracted to the platform. Though Twitter's plethora of unique content may help the company recapture some of that lost engagement, Fitzgerald expects a sizable portion of users' time spent on Twitter to shift to rival platforms or other forms of entertainment.

Twitter's average monetizable daily active users reached 188 million in the third quarter of 2020, up 29% from 145 million in the same period a year earlier. Facebook tallied 1.82 billion daily active users, or DAUs, in the same period of 2020, up 12% from 1.62 billion in the third quarter of 2019.

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"The leader of the U.S. government, and by extension 'the free world,' using the platform as a medium for stream-of-consciousness-style expression and real-time policy proclamations on a daily basis has surely represented a proprietary platform advantage for TWTR, now gone," Fitzgerald said. "While Trump's influence would have inevitably waned over time, we believe a second term, a 2024 run or a period of continued relevance post-presidency would have represented superior outcomes for TWTR vs. what likely lies ahead."

Wall Street thus far appears to share this view. Compared to Twitter's close on Jan. 8, the last full trading day before its decision to permanently ban Trump, shares in the company were down a little more than 6% as of market close Jan. 11. Facebook, by comparison, closed Jan. 11 down 4% from its Jan. 8 close.

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For his part, Douglas Boneparth, president of financial advisory firm Bone Fide Wealth, considers Twitter and Facebook's recent stock drops a "knee-jerk reaction" as investors scramble to determine potential impacts from the companies' most decisive action to-date against one of the world's most powerful political figures.

"You're baking in a lot of short-term uncertainty about negative news," Boneparth said in an interview. "The underlying part of that reaction is, well, what comes next? I'm not shocked to see both Facebook and Twitter kind of reeling from that short-term news."

Regarding Parler, which went offline after Amazon.com Inc. stopped hosting it, Boneparth said it remains to be seen whether the platform will be able to find another internet host. Regardless of Parler's ultimate fate, however, Silicon Valley's battle with the platform throws "another log into the fire" over the debate around "what can be said and what can't be said online," he said.

In addition to Parler getting dropped from Amazon Web Services' cloud platform following the backlash to posts on Parler's platform regarding the Jan. 6 riots, Alphabet Inc.-owned Google LLC and Apple Inc. removed the company's application from their respective app stores. In response, Parler sued AWS, with Parler CEO John Matze claiming that the moves from Amazon and other major tech firms have prompted most of Parler's other vendors to also drop support for the site.

Founded in 2018, Parler has gained notoriety in recent months as leading conservatives like Sen. Ted Cruz, R-Texas, and Fox Business host Maria Bartiromo urged their followers to migrate to the site, claiming that Facebook and Twitter censor conservative voices. The tech companies have denied such claims. Parler's CEO Matze in a recent statement said its leaders "do not condone or accept violence on our platform and we never will." He pointed to Parler's community guidelines, which expressly forbid content that incites or threatens violence. But he said Parler may be slower than other platforms in removing content that violates those guidelines.

"Parler is not a surveillance app, so we can't just write a few algorithms that will quickly locate 100% of objectionable content, especially during periods of rapid growth and the seemingly coordinated malicious attacks that accompany that growth," Matze said.

Jeremy Bowman, a consumer goods and technology specialist at financial advisory firm The Motley Fool, holds a slightly more optimistic view of social media's long-term outlook. He said in an interview that social media platforms like Twitter are a valuable communication tool that will likely remain as such even after Trump leaves office.

"I think the story line will fade ... and I think the business impact will be minimal," Bowman said.