In a world where information has to be disseminated to investors equally, it's important for us to know where to turn for useful information. In most cases, it means going to a company's investor-relations website and signing up for press releases, which is how companies release most of their important information.
That's why Netflix (NFLX 1.98%) CEO Reed Hastings got into trouble after posting on his Facebook account that the company had delivered 1 billion hours of streaming content. This wasn't released by the company; Hastings posted it on his personal account, and investors who didn't look there weren't made aware of potentially relevant information.
But the SEC ruled yesterday that it wouldn't punish Hastings for the gaffe and even said it will allow social networks to be used to disseminate information to investors. This marks a paradigm shift in the way companies can deliver information.
Opening a can of worms
For those of us who use Twitter to follow the markets and companies, this could be an advantageous ruling. But the SEC didn't go as far as saying which social networks can be used, only that companies have to tell investors where they can find information. One company might use Facebook, one might use Twitter, and Google now has ammunition to use Google+ to communicate with investors.
For Facebook, Twitter, and Google, this is great news. They're now a little more necessary in investors' lives, maybe drawing a few new users into their ranks.
As Fortune writer Dan Primack pointed out yesterday, the SEC didn't even go as far as to say a central repository is required. Most companies have investor-relations websites these days, and this would be a logical place to store all necessary information and list the feeds the company is on. But even that's not required.
In theory, a company could post one earnings release on its website and the next on MySpace. I doubt that things will go that far, but you can see the challenge for investors.
Tesla Motors (TSLA 7.33%) CEO Elon Musk highlighted the problem just last week, when he announced a "Really exciting @TeslaMotors announcement coming on Thursday" via his personal Twitter account. The stock jumped on the vague announcement, but most investors were probably searching for the cause of the pop unless they happened to be following Musk on Twitter and were on the site at the time.
Social networks such as Twitter and Facebook might be nice tools for investors, but you can see why even those well-known sites could be problematic for company announcements unless the SEC sets appropriate guidelines.
Two worlds collide
A ruling allowing companies to use social media was bound to happen eventually, but the details surrounding it are troublesome. Investors now have to figure out which social networks companies may be communicating on along with signing up for regular email alerts. What were supposed to be convenient social-media tools just made investing a little bit more complicated.