Twitter announced Friday night that it was ridding its platform of Donald Trump for good. This, of course, came after the president used his platform of choice to stir his followers to riot at the Capitol building last Wednesday.
Many cheered the move—including hundreds of Twitter employees—but the company’s stock woke up to a hangover on Monday, dropping as much as 12.3% in early trading and shedding about $5 billion of market value. The stock price recovered somewhat throughout the day Monday, losing 6.4% intraday. But the volatility may not be over.
Was Trump’s account really worth $5 billion to Twitter? And why did so many investors head for the exits? Analysts are suggesting three main possibilities.
1. Fear of sagging engagement
The near-term fear is that because Donald Trump is such a prominent figure on Twitter, the platform may see a large chunk of engagement disappear with him.
“The Trump Twitter ban may lead to fewer users, as one of the platform’s largest speakers is removed,” says Georgetown internet law professor Anupam Chander in an email. “Some users have already tried to migrate to Parler, for example, though that has proven to be a dead end.” (At least for now: Amazon Web Services, which hosted the right-wing social media site Parler, pulled the plug Sunday night.)
Not only did Trump tweet constantly, but his tweets were almost always some form of dog whistle to his base. They were often widely shared and frequently went viral. His tweets also reached beyond the platform as they were often discussed on TV news and on other websites.
One thing on Twitter investors’ minds right now is how the platform will continue to grow. Losing its 6th most popular account (with 88 million followers) is a step in the wrong direction.
Creative Strategies analyst Ben Bajarin adds that investors might just be registering the reality that Trump will soon no longer be president, and that Twitter’s engagement numbers may have gone down anyway.
2. Fear of an exodus
The second reason for the stock drop is a bit more forward-looking. Right-wing and conservative users have long felt less at home on Twitter, which is run by a San Francisco-based tech company peopled mainly by liberals. It’s also true that politically, Donald Trump has become the center of the right’s world—the GOP has become the Party of Donald.
Bank of America equities analyst Justin Post wrote in a research note Monday that Twitter may experience some user “churn from the conservative community” in the current quarter. Over the past few months, some prominent conservative commentators announced that they were moving to Parler (though few actually deleted their Twitter accounts altogether). Still, that option may no longer be viable given the AWS ban.
Despite this trend, BofA still rates Twitter a “buy.” Post writes that “after some deactivation newsflow near-term, strong political activists will stay on Twitter for other content.”
“We think other Tweeters can replace Trump, and note since 11/17, Trump’s follower count is down by about 180k, and Biden’s is up by over 4 million,” he writes.
In addition, advertisers may not be as interested in reaching some of Trump’s most extreme Twitter followers. “The audience for speech condoning violence is pretty small—and in any case, whatever its size, that audience is not worth serving,” Professor Chander adds.
Right-wing users have threatened a walk-out many times before, but it’s never happened on a large scale because Trump has never been willing to abandon Twitter for some other, more right-friendly social platform. Now that Trump is gone, right-wingers may have less reason than ever to stick around.
3. Fear of regulation
Investors abhor regulated markets, and they get antsy when they catch a whiff of impending regulation in the air.
Whether Twitter was right or wrong to banish Trump, its move Friday was a display of power. When a single tech company is powerful enough to silence the main communication channel between the most powerful man in the world and his followers, regulators are apt to take notice.
It wasn’t alone—Facebook also suspended Trump’s account at least through the inauguration of Joe Biden on January 20 and it too suffered the consequences: Facebook stock sank 4.5% and erased $33.6 billion in market cap. Platforms companies displaying their willingness to shut down large media channels seems to have made investors nervous.
The big social networks themselves often say they want government to create a common set of rules that all players would use for content moderation. But their enthusiasm may depend on how much they get to help write the rules. Their investors can’t know what an eventual regulatory regime for social networks might look like, especially with the growing feeling in Washington that Big Tech has simply become too powerful.
Twitter stock is down because they ensured that every country outside the US is going to severely regulate or replace them.
Imagine the UK allowing an ideological San Francisco company to control the BBC. Will India be ok with Twitter having authority to de-platform Modi?
— JD Ross (@justindross) January 11, 2021
And this applies not only to the U.S. but to other countries that might restrict Twitter’s business. Twitter hopes to achieve most of its future growth outside the U.S.
In addition, some of Twitter’s value may remain dependent on the continued challenges of alternative, right-wing social networks like Parler and Gab. Parler has now filed suit against Amazon, hoping to have its service restored. Gab has had its own share of problems—numerous hosting and internet service providers have abandoned it in the past because of content moderation issues. Its CEO Andrew Torbin says Gab now relies on its own home-build servers, and, lately, it’s been picking up new members at a clip of 600,000 to 700,000 per week.
In pre-market trading early Tuesday morning, Twitter’s stock had recovered slightly, up nearly 2% from the close on Monday.