Facebook Inc (FB), Netflix, Inc. (NFLX): Social Media Opens Up New Issues for Investors

Yesterday, the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI) dropped 143 points after the Associated Press Twitter account posted a tweet saying that the White House had been bombed and the president injured. Everything in D.C. was actually fine, but there was something amiss on Twitter. The AP’s account had been hacked, allegedly by a Syrian group which quickly took responsibility.

The talking heads will no doubt take this as an opportunity to say, “Told you so,” to supports of social media, but the issue wasn’t with the media, it was with the lack of security at the AP. As anyone can tell you, a security system is only as strong as its weakest component. The rise of social media merely means that there are more components in play, not that they are inherently weaker.

The changing ways of social media
A CNN article published after the hack laid the blame squarely with Twitter, but that’s not fair. Blaming Twitter is like blaming a locksmith for your home getting robbed even though you left the door open. Twitter has provided the tools for security, but those tools have to be correctly implemented.

Apart from the huge fall, the main reason we’re even discussing this is because companies are starting to use social media sites like Facebook Inc (NASDAQ:FB) and Twitter to make real announcements. Last year the practice got attention when Netflix, Inc. (NASDAQ:NFLX) CEO Reed Hastings posted on his Facebook Inc (NASDAQ:FB) page that Netflix, Inc. (NASDAQ:NFLX) had just cleared 1 billion hours of steamed content in a month. The SEC moved in to warn Hastings, saying that Facebook Inc (NASDAQ:FB) wasn’t a public enough place to make those sorts of announcements.

Fast-forward to 2013 and the SEC announced that social media might be all right after all. Earlier this year, it said that using social media was OK as long as companies disclosed their plans ahead of time — which just means that you need to tell me to watch the Facebook Inc (NASDAQ:FB) page if you want to make meaningful announcements on Facebook Inc (NASDAQ:FB).

The reason to use social media
The main reason the AP hack was so damaging is that people use Twitter. As Kavitha Venkita from the CEB consultancy said, “The SEC looked at it purely from the perspective of disclosure equality, but not from the information risk standpoint.” The SEC wants as many people to have fair access to corporate news as possible, and since people are on social media, companies should be able to disclose information there.