Tech stock rout ‘is not Snap-specific,’ Jefferies analyst says

Jefferies Sr. Analyst Brent Thill joins Yahoo Finance Live to discuss ad-driven tech stocks, Snap’s guidance warning, and the outlook for the tech sector.

Video Transcript

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- Social media stocks are on the mend, at least for now, after sending the NASDAQ to its lowest close since November 2020 yesterday. This came after SNAP warned it will miss its own targets for earnings and revenue in the second quarter. Joining us now on what lies ahead for these tech names, we've got Jefferies senior analyst Brent Thill. So Brent, let me ask you the question we were asking yesterday because we saw, yet again, SNAP fall and then its competitors all fall.

How much of what we heard from Snap yesterday you think is a SNAP-specific story? How much of it is about the broader sector?

BRENT THILL: I think it's broader sector. I think what you're seeing is the consumers rolling over. Look at the Target, Walmart, all the data points of the consumer world, even Netflix. The consumer is being more cautious with their dollar. They're effectively impacting demand, and those, advertising and marketing, is the first thing to go when things get tough. And so what you're seeing is companies are turning off their marketing and advertising based on the macro conditions slowing, the supply chain issues.

If you can't get product-- and Chuck Robbins at Cisco's saying this. He's like it's not a demand problem, it's a supply issue. You can't get products to your customers, why are you going to market and advertise them? You're not, right? So I think in the other factors we're coming off a pandemic where everyone's sitting inside on their phone. Like, everyone is going to Europe. Everyone wants to be at the beach. People like are tired of sitting inside, right?

So we're not glued to our screens as much. So I think you have several factors that are headwinds. This is not a SNAP-specific issue. Google, this quarter, is looking at a 60-plus precent comp, and the Street's modeling 15% growth on a 60% comp. Like, we're way below that. So I think you're going to see this impact Google, Amazon's ad business. Trade desk is a company in connected TV. They're not seeing it as much because we're all consuming less ABC on TV, sorry ABC, and we're consuming more online.

That's what's happening. And so I think that they're seeing less of an impact. But make no mistake, advertising is the first thing to go, and it's the first thing that's gone in every recession. And I'm not saying we're going in for a nasty recession. We're definitely slowing across every factor, and you can see it in all the consumer data.

- Yeah.

BRENT THILL: So I think it's a slowdown. Now, many of these stocks have been rocked. That's another topic, which is OK, a lot of these stocks already reflect. So SNAP, to me, you know, when it got drilled yesterday and down 40, I'm like this is not SNAP-specific. And then the last point is privacy, right? Apple's got a massive privacy issue going on that's impacting ability to target.

- Yeah, so Brent, I guess then the question is why wasn't all that already priced in? And this seems to be part of the market psychology argument here, but shouldn't all of this have been apparent after we already saw the stocks go down 10% and then 15%. I mean, I guess another 1% or 2% after a 20% drop is one thing, but I thought all of that thesis has been floated already out there.

BRENT THILL: Well, this is, this is the good point, which is that there are no buyers for tech right now. Everyone is like I'm waiting until the fall. Like, we're going into a recession so I don't want to catch a falling knife. So yeah, look, we've had seven straight down weeks on the NASDAQ. I mean, the last time this happened was 20 years ago. So like a lot of this is priced in, but make no mistake. I mean, we have clients that are shutting down right now.

We have clients that are losing their job. We've had portfolio managers gone from 10 tech positions to two positions in our hiding in Dollar Store, Clorox, Pepsi, other defensive names. We're going to food, shelter, and love is as the de facto of like hey what do I need. And we're going back into defensive areas. I mean, the number of portfolio managers that used to work in tech and are now working on energy and utilities, I mean, it's-- I've been seeing clients for the last three or four weeks on the road, and no one right now is saying yeah, I'm really willing to step up and buy tech.

And so I think it-- look, the sentiment is awful. It's so awful it's almost bullish. And we're advocating that look, you want to take some positions here, but you still have downside because we haven't fully seen the full effect of what the recession could look like. And we're not going to see that until we get to probably the fall, into early '23.

- Brent, I have to ask you about Twitter because they certainly haven't been immune from the sell off. I'm looking over the stock's trading right now. $36.59, when Elon Musk bid for $54.20. What do you think happens to the deal?

BRENT THILL: Price is going lower. I mean, there's no-- I mean, look at Elon's, look at Elon's tweets. He's got poop emojis on top of what the CEO of Twitter is saying, and now he's actually said that one user said well, if there's 20% of these users are robots, isn't that a 20% discount? And his response is absolutely. I mean, Elon is not a dumb guy. Like, we say don't bet against Musk. Like, this guy, look, he knows that he's overpaying.

He knows that the world has changed in the last month and that things are getting softer. I mean, look at the SNAP numbers. I mean, SNAP said they were going to-- just a month ago, things were amazing. Five weeks to go in the quarter, five weeks, they're like we're going to be underneath the guidance we just gave you four weeks ago.

- Now, Brent--

BRENT THILL: What does that tell you? Things are softening materially.

- How much of this whole Twitter story is actually part of the blame on the actual board themselves because there has been this argument out there that maybe they shouldn't have gone so quick to ink the deal with him, which is kind of locking them into this very weird situation that they're in right now?

BRENT THILL: I don't think this has anything to do with the board. I mean, Elon said he doesn't like the board. He doesn't like the senior management team. He's been pretty clear about that. He's already been clear about that. This has to do with he is using the bot thing as a scapegoat for the market slowing down. I mean, look at the SNAP numbers. Like, do you want to pay that price now based on what you're seeing? And so he's trying, in my opinion, again, he's trying to defer this and put, put the attention on something else when it doesn't matter.

What matters is Twitter's business. I mean, he talks out of both sides. He says like it's an amazing business. We can do all these revenue and users and blah, blah, blah. And then all of a sudden, he's like it's a mess, they're all robots, and the management team is a disaster, and the board blah, blah, blah. Like, it's like what is this? What is your call Elon? We don't know what your call is.

Clearly, he's trying to get a lower price. This is what it is. He wants the asset. He wants it at a lower price. It is 100% clear to everyone that has looked at this that's all he wants. He wants to control this. He just wants a lower price.

- And I'm sure we'll hear about it on Twitter again. Brent, it's always good to have you on the show. Brent Thill, Jefferies senior analyst.