Can the Metaverse withstand the impact of UK online safety rules?

Posted: 7 February 2022 2:21 pm
News

A new online safety bill is set to change how big tech firms like Facebook respond to toxic content. The share price of Facebook’s parent, Meta, dived last week. Does the new bill signal more trouble ahead?

The UK government has proposed new rules to tackle the spread of harmful and illegal content on social media sites including Facebook, Instagram, YouTube, Twitter and TikTok. If the proposed online safety bill passes, then social networks could be fined 10% of their global turnover if they fail to remove harmful content.

With many investors already concerned about potential regulation in this arena, what does a bill like this mean for Meta Platforms’ (FB) share price?

How could this impact big tech stocks?

The UK government’s proposed bill includes provisions outlawing content that features revenge porn, or dealing in drugs or weapons, or that promotes suicide, among other offences.

While the emphasis has previously been on swiftly removing such content once it’s been reported, the change in the law would mean that social media companies would need to prevent it from being published.

And it is the ramifications if they fail to do so which could have an impact on their performance. It would leave them open to fines of up to 10% of their global annual revenues. Or potentially sites that are non-compliant being blocked altogether.

While many site users will welcome the proposed curbs, investor confidence is likely to be shaken by the potential exposure to fines or operations temporarily ceasing if social media sites can’t put measures in place to effectively tackle this type of activity. And with the UK blazing the trail, other countries could also soon follow suit.

What does this mean for investors?

Meta Platforms’ (FB) share price took a significant hit last week, falling by 26% over 2 days and wiping close to $230 billion (£169 billion) off its value. For a 5-year view of the performance of this share, see the graph in our dedicated guide.

Disappointing results were definitely a factor, but Facebook’s attitude towards good governance has also made investors nervous. The impact of the regulatory net closing, combined with a drop in new users, could hit the company’s growth prospects.

This is could prove to be a problem for UK funds which have bought into the supposed immortality of Meta’s (FB) share performance. Even if you don’t own social media stocks directly, owning something in the NASDAQ Composite or S&P 500 means that you could feel a knock-on effect.

Having a diversified portfolio can help reduce risk. Big tech stocks have been on the rise in recent years. But an inflationary environment, increased regulation and weaker future earnings suggests tricky times ahead for FAANG stocks.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested, so your capital is at risk. Past performance is no guarantee of future results. If you're not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.

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