Why Twitter Stock Was Slumping Today

(The Motley Fool)

Shares of Twitter (NYSE:TWTR) were sliding today after investors reacted poorly to the company’s decision Friday evening to permanently ban President Donald Trump from its platform. The decision comes after the president incited riots last Wednesday inside the Capitol building, and after the company suspended the account for 24 hours following the attack. Twitter explained the move in a blog post, saying that Trump had continued to violate the platform’s rules, including inciting violence, even after the suspension.

Trump, who’s tweeted under the account @realDonaldTrump, has been one of the most powerful voices on the platform, and investors seem to believe that the site will have less traffic and salience, especially in conservative quarters, without the outgoing president’s commentary.

As a result, the social media stock was down 5.7% as of 11:47 a.m. EDT, after sinking as much as 12.3% earlier in the morning. Shares of Facebook, which has also suspended Trump at least through the end of his term, were down 2.9% at the same time.

Bank of America analyst Justin Post helped provide some context in a note this morning. Post said that Twitter faced some “engagement risk” with Trump off the platform as he had 88 million Twitter followers, the sixth-most of any account. That total number is equal to nearly half of Twitter’s daily active user base. Post predicted some churn from conservative followers, but maintained his buy rating on the stock.

While it may make sense to connect Trump’s absence with Twitter’s performance, the actual business case for that seems hazy at best. During 2016–2017, which includes Trump’s first campaign, election, and first year as president, Twitter stock languished at all-time lows, indicating the president’s rise did little for the underlying business.

Now what
The market is most likely exaggerating the impact of Twitter’s decision. After all, Trump will no longer be president on Jan. 20 and therefore his influence and relevance will be greatly diminished. News media will likely no longer feel compelled to report on his comments as he’ll just be a private citizen.

As for Twitter, the company’s ability to monetize its user base is much more important for its business prospects than whether Trump is allowed on the platform. If anything, the president has shown how powerful the medium is, as Twitter has long been his favorite megaphone for getting out his message. For Twitter, that legacy as a valuable political messaging tool is not going away.

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