NOS Nieuws•vandaag, 11:45
The tech sector is bracing for economic headwinds, strong growth is giving way to slight growth, stagnation or even contraction and the outlook is uncertain.
Take the quarterly results of Meta, the parent company of Facebook and Instagram. Lower turnover is reported for the first time. Snapchat sees its losses continue to rise, Twitter is rumbling (acquisition dispute with Tesla CEO Musk) and Netflix is once again losing subscribers due to increasing competition and is taking significant steps.
And things have been going so well for the tech sector in recent years. Due to the pandemic, the world went ‘online’. Working from home became the norm and you no longer went out for entertainment, if only because everything was closed during the lockdowns. The growth at the tech giants could not stop, with 2021 as the peak.
But since then, things have deteriorated, partly caused by rising inflation and economic turmoil. Advertisers are becoming more cautious and spending less money.
Meta, Snap, Twitter and Netflix all grew during the pandemic, but stock prices have fallen in recent months:
Stock market analyst Jim Tehupuring of 1Asset Management thinks that the stock market has reacted excessively in recent months. Even worse figures were taken into account and from that perspective, the quarterly figures were not too bad. And that brings some peace to the market.
“It is not the case that all tech companies are in the same bad position, says Tehupuring. “You have good and bad . The first category includes tech companies that are profitable and do not need outside money. The other category are fast growers who don’t make a profit and do need outside money.”
Those ‘bad’ companies are much riskier in uncertain times. He points to Snapchat’s parent company; there is no way to make a profit. Twitter has the same problem. And with Netflix, the question is whether it can grow much further, because many providers have joined.
A company develops in three phases, says Tehupuring. First, there’s the heady start. Then success is achieved, without real money being made. Then comes, if all goes well, the third phase: the cash cow.
And in that category is big tech. Meta, Google, Apple, Microsoft and Amazon together account for a quarterly turnover of 350 billion euros. They are so big that they can take quite a bit of adversity.
Extra pain for Meta and Snap
On top of the economic uncertainties, the concerns behind Facebook, Instagram (Meta) and Snapchat (Snap) are also suffering from a privacy measure that Apple introduced last year. Since then, users have been able to indicate that they no longer want apps to track them elsewhere on the internet.
It makes personalized ads less accurate. This has already cost Meta billions of dollars. The company has not yet found a solution for this.
This does not alter the fact that the tech sector has become accustomed to the enormous success in recent years, especially during the corona pandemic. But that’s over. “The situation now is worse than in the first three months of this year,” said Meta CEO Zuckerberg. His company saw its turnover drop slightly for the first time.
Brake on workforce
Prior to the quarterly earnings period, there were all kinds of reports that companies are hiring less staff. This is seen as a signal to investors that the tech companies are taking the deteriorating conditions seriously.
For Silicon Valley, where it’s all about growth, growth and more growth, that’s a big change.
For example, Google normally hires thousands of employees. The fact that the search giant is not doing this now is seen as an unusual step. Apple, the most valuable company in the world on the stock exchange with $2500 billion, also wants to reportedly want hire fewer people and pay more attention to spending.