‘Invincible until they are’: Are there signs of a downtrend in the tech market?

Jeff Bezos knew this day was coming. Amazon Boss Back in April warning Tweeting about an impending market downturn, the epic tech boom experienced during the past two years cannot last forever.

“Most people underestimate the notability of this bull run,” he said. “Such things are invincible… until they are not.

“Markets teach,” Bezos said. “The lessons can be painful.”

For years the tech industry has led the stock market with busted-out profits, fueled by a pandemic that has moved much of the world online. Everything has changed now, with trillions of market cap lost in recent weeks. One-time hot startups are being duped by investors, and even tech giants seen as stable investments have faltered.

After losing $200bn in market value this week, Apple is no longer the most valuable company in the world. It joins several other tech companies in the recession that began in late 2021, and brought the larger Nasdaq Composite down more than 13% in April — a drop of more than 30% from the previous year’s record high.

Meta lost a record $230bn in market cap after a disappointing earnings report in February in which it revealed that its Facebook platform had experienced its first user decline. Amazon reported its first loss since 2015 in its most recent earnings report last month. Alphabet’s revenue fell short in its first-quarter report. Smaller firms are also struggling, with the pandemic success story Peloton seeing shares fall 20% this week as demand for indoor exercise equipment collapsed.

Hiring freeze underscores a post-pandemic recession

Twitter announced in an internal memo on Thursday that it was freezing new employees, and Meta did the same last week, citing the expense guidance it provided in its most recent earnings report. Amazon said in a recent earnings call that its warehouses were “overstaffed” and it is “working to remedy that” when it is not considering layoffs.

Startups are seeing similar trends, with layoffs tracking site Layoffs.fyi showing that at least 55 tech firms have reported layoffs since the start of 2022 – compared to only 25 in the same period of 2021. in.

The slowdown in hiring comes even as the broader market experiences job growth, with 431,000 jobs added in April. Haris Anwar, senior analyst at Investing.com, said the freeze was evidence that the market rally was driven by a confluence of unique factors, and was not a long-term trend.

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“Overall market sentiment is reversing from the very bullish sentiment seen during the pandemic, during which companies saw a huge jump in demand. In the post-pandemic world, that demand is now approaching more normal levels,” he said.

As Covid-19 hit in early 2020, companies like Peloton, Zoom and Netflix closed offices and people spent more time at home. Zoom saw its value jump more than 500% in a year, but the stock has seen a decline in recent days to nearly pre-pandemic levels. Netflix, which added more than 36 million subscribers during the first year of the pandemic, has lost more than half of its value since reporting disappointing results on April 19.

Raj Shah, an analyst with digital transformation consultancy Publicis Sapient, said such growth cannot be predicted nor can it be sustained forever.

“Revenue is down, costs are up, and tech companies are going to do what every other company in this situation would do – cut costs through freezing hiring, getting rid of costs like unused real estate, pushing for higher productivity and Investigate again,” he said.

“Is this a technical bust? It remains to be seen,” he said.

Other factors at play

Experts say the rapid growth of tech companies is not the only factor in the recovery from the pandemic. The war in Ukraine has had an impact on advertising spending and exacerbated supply chain problems already triggered by the pandemic, a hardship cited in recent earnings calls.

“The war in Ukraine, which is a real tragedy on a humanitarian level, has also had an impact on our business,” Meta CEO Mark Zuckerberg said in a call with investors to accompany his first-quarter earnings report. “We have been blocked in Russia and have decided to stop accepting ads from Russian advertisers globally. We have also seen the impact on business globally after the start of the war.”

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Brian Weiser, global president of business intelligence at GroupM, accelerated the downturn, saying such headwinds are scaring investors.

“There’s an overwhelming sense of fear and anxiety, a lot of decision makers have everything financially right now,” he said. “The war certainly catalysed a lot of it, but inflation and supply chain issues were already a problem.”

US inflation was higher than expected in April, near a 30-year high of 8.3%. Inflation largely affects consumer spending, which can have a major impact on companies that rely on e-commerce.

Fears that the Federal Reserve will continue to raise interest rates to the point where the economy will slip into recession are further influencing investors’ decisions, Anwar said, shying away from high-growth tech stocks.

“The market is always thinking ahead,” he said. “Many investors are acting as if a depression is a done deal. Is that going to happen? The big question mark is. But that’s why we’re seeing an exodus from these stocks.”

crypto takes a hit

Technical recessions are not limited to traditional markets. As the cryptocurrency took a massive drop this week, and bitcoin fell below $30,000 for the first time in nearly a year, wiping more than $200 billion off the broader market, some declared that “crypto is dead.” .

Crypto’s stumbling block has been attributed, in part, to a recent shock in the market, when a popular “stablecoin” called TeraUSD collapsed. Stablecoins, a type of digital currency pegged to the US dollar, are considered less volatile than traditional cryptocurrencies.

DailyFX analyst Tammy da Costa said its decline has scared investors that this is not true, as evidenced by the collapse of Terra, as well as a disappointing earnings report from major crypto exchange Coinbase.

“A major concern is that many retail traders invest in bitcoin and crypto in an effort to achieve higher returns in a low interest rate environment,” he said. “Now, as price pressures continue to mount and the cost of living goes up, there is fear” [have raised] There could be a systemic setback if large institutions continue to withdraw funds from their crypto portfolios.”

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In addition to digital currency blunders, the same market force affecting big tech companies could also affect digital currency, Wieser said. Although crypto has traditionally been regarded as separate from the market, it cannot escape the war in Ukraine and other major headwinds.

“Higher interest rates make everyone more aware of investing and the choices they make when it comes to momentum driven properties,” he said. “It doesn’t take much to send these types of markets in the other direction.”

not a recession, but a recession

While many are panicking, Weiser immediately noted that it’s not that these companies are failing — it’s that the explosive growth seen over the past two years is not sustainable.

“Recession is not the same as decline,” he said. “If you’re up 20-30%, and then you’re suddenly only growing 10%, that might sound like a significant change. But it’s not an accident.”

While tech companies seem to be slowing down in hiring patterns, there are no signs yet that massive layoffs are on the horizon for major companies like Meta, Twitter and Amazon — all of which have expressed that they have the potential to downsize. There is no plan.

Still, rumors are swirling that big cuts for smaller firms are on the horizon. “The next 6-8 weeks are going to be bloody,” JD Ross tweeted, co-founder of music investment platform Royal. “I’ve been hearing rumors about a ton of companies preparing to lay off 20-40% of their team.”

Shah of Publicis Sapient said the slowdown is coming from a confluence of factors affecting companies across the market: inflation, the war in Ukraine, supply chain crises and changes in consumer behaviour. Big tech companies will probably continue to be the “safe harbor” – woven into our digital lives longer and more likely to weather the storm of the market. But how the larger industry will be transformed remains to be seen.

“Tech shares are in for a bumpy ride,” he said.

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