In the beginning, there was the Internet. Then, in a big bang of light, sound, and tweets, there was social media. Since then, companies haven't known quite what to do with themselves.
There has always been some gray area as to what's appropriate for a business' social-media presence, and what isn't. Now the SEC is getting involved, and its latest decision doesn't crack down nearly as hard as you might think. In fact, Netflix is already reaping major benefits from it, not to mention Facebook itself.
The latest ruling
In a statement released on April 2, the SEC said it was perfectly ethical for companies to take to social media for releasing "key information," just so long as they abide by the SEC's Regulation Fair Disclosure.
To find out what constitutes key information, take a look at the company that sparked the action: Netflix. Last July, CEO Reed Hastings posted on Facebook that users were streaming more than 1 billion hours of video a month. Within one day, Netflix's stock jumped from $70.45 to $81.72, which raised quite a few red flags about the post.
But now, as far as the SEC is concerned, this kind of self-promotion is A-OK among public companies, just so long as they clarify which social-media tool they plan to use. If a company says its news will be available on Facebook, for instance, and it pops up on Twitter or (suspend your disbelief for a moment) Pinterest, then there's a problem.
Are Facebook and Netflix better off?
Facebook's stock took a noticeable jump after the SEC announcement, rising 5% from $25.32 to $26.67. This reaction suggests that the market is celebrating the SEC's decision, and the good news couldn't come soon enough for Facebook. Even after the success of Graph Search's unveiling, the company is still struggling to return to its IPO price, so any positive press must feel like a breath of fresh air for Facebook and its investors.
The news is also Netflix's second SEC victory in a month. A few weeks ago, the company finally got the government's go-ahead to make its social-media service, Netflix Social, available to U.S. residents. So why hasn't its stock reflected these victories accordingly?
For one thing, the SEC news coincided with whispers that investor Carl Icahn had sold 10% of his share in Netflix. Even though Icahn later denied the rumor, the damage was already done. That news, paired with the announcement that Time Warner had released its own online streaming service, was enough to sink Netflix's stock by 4%.
But don't cry for Netflix just yet. The company's annual revenue has more than doubled since 2008, and while it possesses a market cap of $9.46 billion, it has just $400 million on the books in long-term debt and boasts $3.9 billion in assets. And that doesn't include the revival of Arrested Development.
There's always money in the social-media stand
By and large, the market has met the SEC's new ruling with cheers. Besides helping Facebook's stock, the regulation has clarified what's legal for countless other publicly traded companies, and now they'll be able to promote themselves even more thoroughly than they already might. For investors, it could be great news, but for casual Facebook users, it might mean you're soon seeing more posts from companies than from your friends.
While Netflix's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? In a premium report on Netflix, we try to answer these questions. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.
The article Social Media and the SEC: A Love Story? originally appeared on Fool.com.Fool contributor Caroline Bennett has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Facebook and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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