Pro Perspectives 10/27/20

October 27, 2020

Tomorrow all eyes will be on the Senate hearing with the heads of Facebook, Google and Twitter. 

The hearing is titled, "Does Section 230's Sweeping Immunity Enable Big Tech Bad Behavior?"

Arguably, the last U.S. election was won by Trump's use of Twitter.  And this time around, he may lose it by the use of social media against him. 

Here is what is protecting big tech from any recourse from bad behavior on behalf of the actions of their users, or from bad behavior their own actions. 

This is from Section 230 of the Communications Decency Act …

This was written in 1996. Clearly, the world, technology and the internet have changed a bit. There was about 45 million people in the world using the internet when this law was written.  Today, that number is 4.5 billion. 

If these companies lose this privileged status, the business model changes.  That means the multiple changes (i.e. lower multiple).  Right now, Google trades at 35 earnings (ttm).  Facebook trades at 35 earnings (ttm).  Twitter trades at around 27 times earnings (pre-crisis full 2019 earnings). 

But this would be far from the end of the big tech giants. Ironically, if this rule were to be revised, to hold these big platforms accountable, it would only strengthen their competitive moat.  There will never be another dorm room startup that could conceive of competing with them.  The cost of regulatory compliance, in house content management and enforcement, and the liability would preclude any new competition.