Stock Analysis & Ideas

Supreme Court Decision Prompts a Sigh of relief for Social Media Stocks

Story Highlights

The U.S. Supreme Court has paused the enforcement of the new Texas social media law, bringing some respite to these companies, at least for now. 

The state law that allowed Texas residents to file a lawsuit against social media companies for content moderation and removal has been blocked by the U.S. Supreme court. 

What exactly is this law? Texas House Bill 20 or HB20 prohibits social media platforms with at least 50 million active users in the United States from censoring users based on their viewpoint.

Notably, large social media platforms, including Meta (NASDAQ: FB) owned Facebook and Instagram, Alphabet (NASDAQ: GOOGL) owned YouTube, and Twitter (NYSE: TWTR), are often accused of unfair moderation and being biased. Further, the lack of transparency for removing content and account suspensions was a matter of concern. Last year, HB20 was passed to combat these issues.

What It Means for Social Media Giants

The blocking of HB20 brings some respite for these social media companies as its enforcement would have increased their legal and regulatory risks. 

Per the TipRanks Risk Factors tool, legal and regulatory risks are one of the top risk categories for these companies. For context, looking at Meta’s risk distribution profile, legal and regulatory risks accounted for 22% of its total risks. Moreover, it is well above the sector benchmark of 15.8%.  

As for Alphabet, legal and regulatory risks account for 23% of its total risks, even higher than the sector average.

Meanwhile, for Twitter, the legal risks account for 14% of the total risks, which is lower than the sector average. 

Bottom Line

The global operations of these large companies put them under a lot of supervision. Meanwhile, complex international laws and regulations directly impact their operations and could lead to litigation and monetary damages. Thus investors should also keep an eye on the emerging risk factors of these top social media companies. 

Notably, TipRanks’ Risk Factors tool allows users to quickly keep track of the changing risk scenario of these corporations, which in turn, helps them make more informed decisions and reduce potential losses.

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