Facebook’s Mark Zuckerberg and Twitter’s Jack Dorsey testify before the Senate Judiciary Committee on Tuesday. DA Davidson Senior Research Analyst Tom Forte joins Yahoo Finance Live to weigh in on the Big Tech hearing.
AKIKO FUJITA: I want to bring in Tom Forte who is an analyst over at DA Davidson watching this hearing for us today as well. And, Tom, is there anything that came out today that we've heard so far that's different from what we had heard these lawmakers discuss in terms of how the content on these social-media platforms really need to change?
TOM FORTE: Yeah, so so far unfortunately I feel like it's kind of been the same tune with the Republicans claiming that they're being disproportionately censored, that conservatives are being disproportionately censored by these social networks.
I do think that there's a structural challenge for Facebook, for Twitter, and for others, and it is basically policing their content to make sure that it is appropriate. And ultimately I think you're going to see, you know, a lot more disclaimers on user-generated content on social-networking platforms like Facebook and Twitter, and perhaps you'll see a lag not unlike broadcast television where the computers will try to determine if a tweet, for example, is appropriate before posting it on the site.
But so far I feel like the narrative from both the Democrats and Republicans is consistent with what it's been. They both know that there's too much influence from Amazon, Facebook, Apple, and Google, but they really don't know how to rein it in.
ZACK GUZMAN: Yeah, Tom, we've heard that agreement between Republicans and Democrats. We also heard that agreement coming from Mark Zuckerberg and Jack Dorsey themselves, both saying that they'd be open to reform of section 230 during that testimony. I'd be curious here to get your take on kind of the pats on their own backs coming from what they, I guess, put in place around the election. We saw them talk about how some of those changes are going to be back on display in the Georgia runoffs here. Facebook and Zuckerberg really complimenting what that company has done to, I guess, energize the electorate, saying that 140 million people visited their voting education center. They got 4.5 million people to register to vote there. I mean, how much of that should be talked about here when we're, I guess, looking at these tech companies and their role in maybe influencing elections?
TOM FORTE: Yeah, so great question, Zack. The way that I think about it is Facebook and Twitter are trying. So to the best of their ability, they're trying to make sure that the content of their platform does not have undue influence on elections. I think Facebook learned a powerful and unfortunate lesson in 2016 to the extent its platform may have had an impact on the ultimate outcome for the presidential election.
But I do think structurally, despite their best efforts, this is kind of something that can't be solved by tech. Artificial intelligence may help to identify tweets or posts on Facebook that are-- should be identified. But I think this is going to be very challenging, which is why I think ultimately it's going to be, you know, a lot more disclaimers on the social-networking websites that the content posts on the websites is not the view of the company but the view of the individual consumer.
DAN HOWLEY: Tom, this is Dan Howley here. I want to ask what you think we're going to get out of hearings along these lines. Is it just more kind of browbeating, as Senator Blumenthal said? Is it just a chance for people to air their various grievances? And do you think that politicians on either side of the aisle actually understand what they want to do as far as section 230 goes, or are they just as clueless now as they were when this debate started?
TOM FORTE: Yeah, great questions, Dan. So when I saw the House Judiciary Committee report, 400 pages long, I saw that they clearly identified the challenges again and the undue influence for Amazon, Apple, Facebook, and Google, and you are seeing evidence of attempts to try to address that. So Senator Warren was going to put together a bill that would limit M&A above a billion dollars for some of these large tech companies.
And then what I found interesting is if you look at the antitrust case against Google, the 11 attorney generals that are joining the federal government in the lawsuit are all Republican. So I think we're starting to see some clues on how the Republicans and Democrats intend to rein in the excess power for big tech. So beyond the grandstanding, which you point out, I do look for more clues on how the Democrats may move forward or how the Republicans may move forward.
AKIKO FUJITA: And, Tom, looking at the share reaction right now, Twitter up just about 7/10 of a percent. Facebook down about 1 and 1/2%. From a business standpoint, what does this mean for these companies and the current structure that they have in place? It seems like, in many ways, investors have sort of discounted the regulatory environment, largely because this is seen as a long-term discussion as opposed to something that's going to change overnight. How are you looking at this discussion on the Hill and how there's likely to be any change in terms of, you know, profitability for these companies?
TOM FORTE: Yeah, it's great question. So I would argue that the sector rotation out of technology on the positive vaccine news has done more to deflate the multiples for these tech stocks than any of the regulatory risk, but I do think the regulatory risk is significant.
But at the same time, if you look at the individual stocks-- you look at Amazon if they were forced to separate the retail business from cloud computing or you look at Facebook and separating Instagram or you look at Google and separating YouTube-- a viable argument can be made that those might be accretive moves from a stock standpoint.
So I do think that we're all trying to determine what the implications are for the stocks. But again, the sector rotation, I think, deflated the multiples more than the regulatory risk so far.
DAN HOWLEY: Tom, do you think that any one company out of the big tech firms is more vulnerable to any form of legislation than the others? We're looking at section 230 here. Jack Dorsey and Mark Zuckerberg seem to both be getting called out equally. But during the antitrust hearings before the House, we had seen that it was largely Amazon and Google and Facebook but mostly Amazon that were taking the hits. I guess is there one firm over the other that seems more vulnerable?
TOM FORTE: So in my opinion if you look at Democrat, you look at Republican, and you look at Amazon, Apple, Facebook, and Google, I think Google has the most risk. They also have an active antitrust case. So I think an argument can be made that Democrats may push for more unionization, which could have a negative impact on Amazon's labor costs. But right now I'd say net-net, Google, I think, is in the toughest position of the four major tech firms when it comes to regulatory risk and antitrust risk.