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Tech stock sell-off ‘feels different’ than dot-com bubble, strategist says

Fitz-Gerald Group Principal Keith Fitz-Gerald sits down with Yahoo Finance Live to discuss the ongoing tech sell-off, how it may affect Elon Musk's acquisition of Twitter, the ripple effect surrounding Snap, and similarities to the dot-com bubble.

Video transcript

SEANA SMITH: It's great to see you. Emily was just discussing the massive selling that we're really seeing across a number of names in this industry. It doesn't look like this is a Snap specific story. But from your perspective, from your vantage point, how are you looking at the losses that we're seeing today?

KEITH FITZ-GERALD: Well, you've got to kind of take them in stride if you look at the market seriously. What management said at Snap really was, hey, we messed up. We didn't plan properly, and we can't execute. We don't even have enough reserves to meet our numbers. So when you cut right down to it, it's not illogical that everything else is going to go down as well, because people are beginning to realize that, hey, posting glamified pictures, doing the things on social media that everybody thought had value, maybe perhaps really doesn't. And that's a harsh reckoning for things today.

DAVE BRIGGS: But it did spread. Alphabet, Twitter, Meta, Uber, you name it, and 28%, the NASDAQ is down year to date. Is this 2000, Keith?

KEITH FITZ-GERALD: You know, it feels different to me. A lot of people are making that argument. But, you know, you've got companies here that have arguably real businesses. In 2000, you had talking stocks and Super Bowl commercials and fancy cars for companies that didn't have businesses. So I would submit this is a function of leverage. This is a function of the Fed rising rates and those concerns more than it is a day of reckoning a la 2000.

RACHELLE AKUFFO: A lot of people are wondering, is what we're seeing with Snap some sort of bellwether? Or is this more of a tech shakeout than really a tech route? What's your take on this?

KEITH FITZ-GERALD: That's a very interesting question because the nuance, of course, is significant. I think this is simply people realizing, hey, these things maybe aren't worth what we thought they might have been worth. To me, the fact that you've got privacy changes, you've got inflationary concerns, advertisers who are not playing the same ball that they did because every buck is harder to come by, and finally, you've got consumers post-pandemic who are actually going out and interested in living their lives, so you simply don't have as much screen time.

To me, that's all cumulatively worth less. So, again, this isn't a surprise to me. It's something I've been seeing for a long time. We've been out of and away from and avoiding social media stocks for a long, long time. And frankly, I don't know that we're going to be back to them anytime soon.

SEANA SMITH: Hey, Keith, what do you think this means for Twitter and Elon Musk's deal? Because he reached a deal for-- to buy Twitter for $42 billion. Right now, Twitter's market cap is just around $27 billion. So what do you think happens next?

KEITH FITZ-GERALD: That's an interesting call, too. I've been giving a lot of thought to that one, because here's the thing, right, is Elon Musk is asking all the right questions. What about the bots? How does this look? I think he's right to question the legitimacy.

So if he walks away from this, and there's a billion dollars in damages, I think the bigger onus is on Twitter's board because they're going to be asking, oh, my goodness. We really don't want that to happen. Because Musk could spend a billion dollars at the blink of an eye and not even worry about it. Twitter, on the other hand, has got a very, very serious problem if he walks. So there's going to be some very intense discussions in the boardroom, I've got to imagine.

DAVE BRIGGS: But to your point, it would cost him a billion dollars to walk, although if you look at the $54.20 offer, Twitter's now at $35.76. Wouldn't it financially make sense to pay that billion, even if you intend to come back and offer a lower price?

KEITH FITZ-GERALD: Now you're in my wheelhouse. That's kind of what I'm looking at, is risk arbitrage here. If you're spending a billion to save five, you know, OK, that's a trade that begins to look interesting. And he's got the moxie to pull it off.

RACHELLE AKUFFO: But how much wiggle room does he actually have to get out of this deal?

KEITH FITZ-GERALD: You know, I don't know. I haven't seen the documents in enough detail. I'm not privy to the insider stuff that's been submitted there. I don't have the answers on how many bots are there, what the real traffic looks like. But again, thinking theoretically through this, it's a question of risk management, not simply buying low and selling high. So if you can spend a little bit to get a better price or a substantially better price, I think Musk is a smart guy, and he's going to do something on that order.

SEANA SMITH: Keith, speaking of Twitter, we heard that Twitter is freezing its hiring. We've heard that from a number of some of these bigger tech companies over the last several weeks. Now we're talking about reducing spending even further. Is this a trend that you see continuing for the second half of the year?

KEITH FITZ-GERALD: I do. You know, and again, it's going to be divided by what skill sets you're talking about, which kinds of companies you're talking about. Because for example, if you looked at carpenters, laborers, skilled trades, those things are in demand all across the board. You can't find somebody to work on your house if you want to. Or you can't find somebody to fix a pipe. But on the other hand, you know, you've got a lot of folks here who are arguably part of industries that are being crushed right now. That's the logical place to see those cutbacks.

DAVE BRIGGS: Keith, Rachelle used the term shakeout a bit earlier. How much of this is, going back a little bit, do we not realize the real impact of those Apple privacy changes on all social media stocks?

KEITH FITZ-GERALD: That, I think, is the question of the day, because Apple very early on adopted a, hey, we're serious about privacy. And we're not going to play these games approach. Now, arguably, a lot of people didn't like it, and a lot of people are split on the decision. But I think the ripples are going to be with us for a long time to come.

The other thing that's happening I think that's behind the scenes that really isn't factoring into today's headlines, but is acutely aware on the minds of many serious social media investors and even the operating officers of those companies, is, what's Congress going to do? What's the Senate going to do? Because our political leaders are understandably flummoxed. They're angry. They're angry on behalf of consumers, maybe rightly angry on behalf of other parties. I don't know. But the legal pressure facing several of these companies is substantial. And I think between the two, now you've got some serious pressure on the stocks.

RACHELLE AKUFFO: So when you look at this pressure on the stocks, and obviously, a lot of retail investors are wondering if and when they should buy the dip, how do you determine which of the companies are worth investing in when you look long-term versus some of the ones that are cheap but not necessarily good buys?

KEITH FITZ-GERALD: Oh, that's a good thing because cash is definitely not trash if you use it right. Here's the thing that I look at, you know. I want to have the best companies in their respective space. I use a phrase called best, not rest. The other thing to think about, if you're an individual investor, is, don't get caught up in the minutia. We use a phrase in our office-- when in doubt, zoom out. Because the bigger, broader picture, if you've got three, five, 10 years out, to deal with it, and you don't need your money right away, growth has slowed at numerous points in history, but it has never in the history of the world ever stopped.

So if you're sticking with the best companies, the visionary CEOs, the companies that are making progress and make our world turn, I submit three, five, 10 years out, you're going to be kicking yourself if you don't start wading in. Now, if you're doing that in a market that's going to continue to sell off, you don't have to buy in all at once. Slow your buying down. Buy a few shares every Monday, something else every Friday. Buy one share at a time if you have to. But force yourself to play offense because history shows, beyond any shadow of a doubt, that the markets have an upside bias. We may not like the downside, but that's short-term noise in the scheme of things.

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