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Twitter (TWTR) Falls on Social Media Crisis, Israel Warning

Zacks Equity Research
Updated

Growing tension in the social media space resulted in shares of Twitter TWTR dropping 10.38% to close at $31.35 on Mar 20.

The current debacle in the social media market is attributed to criticism of Facebook’s FB data security issues. The social media giant has been charged of letting U.K.-based political consulting firm, Cambridge Analytica, appointed for Donald Trump’s presidential campaign, access data of 50 million users without their permission.

Since the 2016 U.S. Presidential elections, Twitter, along with Facebook and Alphabet's Google have faced severe criticism for spreading fake news that allegedly influenced election results.

The recent incident has grabbed the attention of government regulators by bringing the security loopholes of the social media companies into spotlight again, leading to the stocks suffering a bloodbath over the last few days.

Not just Twitter and Facebook, Snapchat-parent Snap Inc. SNAP also suffered the same fate. Both Facebook and Snap have lost 2.56% in yesterday’s trading session.

Amid the ongoing controversy, Twitter suffered another blow with the Israel government threatening legal action against the company. Per Bloomberg, the government claimed that Twitter ignored repeated requests to remove content that promoted or supported terrorism.

However, in the past year,  shares of Twitter have gained 115.6%, substantially outperforming the industry’s 35.5% rally.



Initiatives to Improve Brand Image

Twitter has been taking a lot of initiatives to curb content that promotes violence, hatred and harassment on the platform.

Last December, the company announced a bold step to permanently suspend accounts that promote violence or engage in derogatory and hateful remarks. The company warned that images promoting abhorrence on the basis of race, caste and creed, disability or sexual orientation will also be removed from the platform.

In fact, as part of Twitter’s move to create a “safer environment”, it updated its account verification policy and removed the authentication status of some of its users. The company also removed blue checkmarks without any intimation from profiles that promote violence, hatred and harassment.

Moreover, Twitter along with Facebook, Microsoft and Alphabet, collaborated to form Global Internet Forum to Counter Terrorism (GIFCT) to curb extremist activities. It also took strong steps to fight terrorism by suspending accounts linked with terrorism on its platform.

The company has also made advertisements more transparent by providing users with more detailed information, more specifically for the political and issue-based ones.

We believe that enforcement of strict policies will help the company battle extensive PR damage and regain trust of its users and advertising clients.

Twitter delivered GAAP profit for the first time in its 10-year history in the last quarter. However, investing heavily in deploying artificial intelligence (AI) to curb extremist activities on its platform, which Facebook can do easily, will be an overhang on its bottom line.

Twitter, Inc. Revenue (TTM)

Twitter, Inc. Revenue (TTM) | Twitter, Inc. Quote

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Zacks Rank & Stock to Consider

Twitter carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Paycom Software Inc. PAYC, sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

Long-term earnings growth rate for Paycom is projected to be 25.8%.

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