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The only thing to come out of tech hearing is ’bipartisan support for tweaking 230’: Analyst

Santosh Rao Head of Research at Manhattan Venture Partners joins Yahoo Finance’s Zack Guzman to break down the Wednesday's Big Tech hearing.

Video Transcript

ZACK GUZMAN: Of course, we just wrapped up a few moments ago that big tech hearing with CEOs Mark Zuckerberg, Jack Dorsey, and Sundar Pichai in front of the Senate Committee on commerce. It was supposed to focus on the liability questions tied to these big tech companies. Didn't necessarily hear all about Section 230 or questions around that, but a lot of posturing from politicians around potential censorship on that front, too.

And as we're watching all this play out, I should note Twitter shares are the biggest losers today among those big tech companies, off about 5%. And for more on what that means for these firms, I want to bring on our next guest, Santosh Rao. He's head of research at Manhattan Venture Partners, and he joins us now.

And Santosh, I mean, we were talking about this political pressure just a few weeks ago when we last heard from these big tech CEOs. A lot of that was focusing on anti-trust issues. Now we're talking about censorship in Section 230. You said that these firms have been playing by the rules as long as they're there. What's your take on the sell-off we're seeing today on some of these names and the pressure now mounting?

SANTOSH RAO: Yeah, I think the sell-off is also because of the broad market sell-off. You know, you have the European thing, the shutdown, and all that. It's not necessarily because of this 230 issue here. I think the hearings by themselves, it was very political theater, like you mentioned.

I think the only thing that came out was that there is bipartisan support for tweaking 230, if not adjusting it. I don't know how they'll adjust it, but something needs to be done around transparency and accountability. How it's going to be done is going to be a long process.

I think both the companies, the companies have said that they're willing to work with regulators to give more accountability and give some certainty so people know what are the guardrails around them. But how we get there is going to be a whole different debate. You saw the both sides come on. You have the conservative view, the liberal view.

I don't know where it will settle, but one thing we know, we need Twitter, we need these social media platforms. That thing is established. Free expression is important. Public safety is also important. So that balance will be debated for a long time now.

ZACK GUZMAN: Yeah, and there's a bit of a catch 22 when you think about Section 230 here and how President Trump has been calling to take that away and what it might do. Obviously, it's legal protections for these platforms to not be held accountable for things that are posted there. They obviously have been called on, on the left here to try and police misinformation that's been on their platforms.

But if you take 230 away, it might actually stoke taking more down. And it could backfire in terms of what Republicans want. So it seems like a whole can of worms that none of these tech companies really want to get into to maintain the status quo and not have to worry about this issue as much as they might otherwise need to if things change.

SANTOSH RAO: Sure, sure, I totally agree with that. I mean, you need 230. And like anything else, you just need to tweak it around and get it to a point where it's acceptable. The nation is divided. Opinions are divided. So you're going to see this debate for a long time.

It's not the social media's fault. Yes, there are some abuses or apparent abuses or looked like there were abuses on the margins. But overall, they serve a big need for-- they're a public square essentially. And we need that. We need that dialogue.

But, you know, like I said, you really can't regulate that. You can't regulate public opinion, public square free expression. So it's going to be a very delicate balance. We'll see how it plays out. But one thing is established. Companies are willing to work with the regulators, and the regulators need to be aware that this is important.

ZACK GUZMAN: One last question to you on this, too, because we're going to get Twitter's latest update to investors on their quarter on Thursday. And we are seeing, to your point, I mean, the S&P is off 3%, but communication services, which includes all those names, off by about 3 and 1/2%. Tech off 3 and 1/2%, the biggest losers today.

So when I point to that and ask you about why these names might be beaten down around this or not, what's your take on what we might get when Twitter reports its third quarter? Because RBC, among other firms, saying that they might expect strong results there with the return of live sports. Obviously, the election coming up. A lot of ad money coming in around that, too. So what's your expectations for where we see these tech firms, Twitter specifically, trade?

SANTOSH RAO: Yeah, I expect very good numbers, very good report from them. And this is the sweet spot for them. And at the elections, at any big event, those play right into Twitter's hands. So I think in terms of execution, they're doing a good job. And everything's working well. So I expect a good quarter.

So what's going to pull down the whole thing is the whole tech sentiment. I mean, there is a feeling that the whole valuations is stretched, and they need to pull back a little bit. That can pull down. But in terms of individual performance. I think they will report very good numbers, and we expect that.