‘Unstoppable until they are not’: Are tech market losses signs of a crash? | Technique

Jeff Bezos knew that day was coming. Back in April Amazon Prime warned of an impending slowdown in the market, tweeting that the epic tech boom of the past two years couldn’t last forever.

“Most people greatly underestimate the importance of this bull run,” he said. “Things like this are unstoppable… until they are unstoppable.

“The markets know,” Bezos added. Lessons can be painful.

For years, the tech industry led the stock market with lost profits, fueled by a pandemic that has taken much of the world online. Now all that has changed, with trillions of market value lost in recent weeks. Investors are abandoning once-hot startups, and even tech giants seen as stable investments have faltered.

Apple is no longer the most valuable company in the world, having lost $200 billion in market value this week. It joins a number of other tech companies in a recession that began in late 2021 and sent the larger Nasdaq composite down more than 13% in April — down more than 30% from record highs a year earlier.

Meta lost a record $230 billion in market capitalization in February after a disappointing earnings report revealed that its Facebook platform experienced its first-ever downturn for users. Amazon reported its first loss since 2015 in its latest earnings report last month. Alphabet’s revenue fell in its first quarter report. Small companies are also struggling, with the pandemic success story Peloton has seen stocks fall 20% this week as demand for indoor exercise equipment plummeted.

Hiring freeze underscores post-pandemic slowdown

Twitter announced in an internal memo Thursday that it will freeze new hires, and Meta did the same last week, citing expense guidance in its latest earnings report. Amazon said on a recent earnings call that its warehouses were “overstuffed” and while it was not considering layoffs, it was “working to remedy that.”

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

The hiring slowdown comes even as the broader market sees employment growth, adding 431,000 jobs in April. Harris Anwar, chief analyst at Investing.com, said the freeze is evidence that the boom in the market came from a confluence of unique factors, and was not a long-term trend.

“The market sentiment in general is mirrored by the very bullish sentiment that we have seen during the pandemic, during which companies have seen a massive surge in demand. In the post-pandemic world, that demand is now coming to a more normalized level.”

With the onset of Covid-19 in early 2020, companies like Peloton, Zoom and Netflix thrived as offices closed and people spent more time at home. Zoom has seen its value explode by more than 500% in a single year, but in recent days the stock has almost seen its pre-pandemic lows. Netflix, which added more than 36 million subscribers during the first year of the pandemic, has lost more than half its value since reporting the disappointing results on April 19.

This kind of growth is unpredictable, and it cannot be sustained forever, said Raj Shah, an analyst at digital transformation consultancy, Publicis Sapient.

“Revenues go down, costs go up, and tech companies are going to do what every other company would do in this case — cut costs by freezing hiring, eliminating costs like unused real estate, pushing for increased productivity and re-examining investments,” he said.

“Is this technical bankruptcy? It remains to be seen.”

Other factors at play

Experts say that recovering from epidemics is not the only factor slowing the runaway growth of tech companies. The war in Ukraine has had an impact on advertising spending and hastened supply chain problems already introduced by the pandemic, a difficulty that has come up in a number of recent earnings calls.

“The war in Ukraine, a true human tragedy, has also had an impact on our business,” Meta CEO Mark Zuckerberg said on a call with investors accompanying the first-quarter earnings report. “We were banned in Russia and decided to stop accepting ads from Russian advertisers globally. We also saw effects on business globally after the start of the war.”

Such headwinds are likely to scare off investors, accelerating the slowdown, said Brian Wieser, global head of business intelligence at GroupM.

“There is an overwhelming sense of fear and anxiety in a lot of decision-makers about all things economic right now,” he said. “The war certainly stimulated a lot of them, but the inflation and supply chain problems were really a problem.”

US inflation was higher than expected in April, approaching a 30-year high of 8.3%. Inflation generally affects consumer spending, which can have a significant impact on businesses that rely on e-commerce.

Anwar said concerns that the Federal Reserve will continue to raise interest rates to the point where the economy slides into recession are more affecting investor decisions, as many shy away from high-growth technology stocks.

“Markets are always thinking ahead,” he said. Many investors act as if the recession is a done deal. Will this happen? It’s a big question mark. But that is why we are seeing a mass exit of these stocks.”

Cryptocurrencies take a hit

The technological slowdown was not limited to the traditional market. With cryptocurrency prices dropping dramatically this week and bitcoin dropping below $30,000 for the first time in nearly a year, wiping out more than $200 billion from the broader market, some have declared that “cryptocurrencies are dead.” .

Crypto’s faltering is attributed, in part, to the recent change in the market when a popular “stable currency” called TerraUSD collapsed. Stablecoins, a type of digital currency pegged to the US dollar, are believed to be less volatile than traditional cryptocurrencies.

Tammy Da Costa, an analyst at Daily Forex, said its fall has sparked investor fears that this may not be true, as evidenced by the collapse of Terra along with a poor earnings report from major cryptocurrency exchange Coinbase.

“One of the main concerns is that many retail traders have invested in bitcoin and cryptocurrencies in an effort to get higher returns in a low interest rate environment,” he said. Now, with price pressures mounting and the cost of living continuing to rise, there are concerns [have raised] Systemic shock may occur if large institutions continue to withdraw funds from their crypto wallets.”

Wieser said that apart from the blunders of digital currency, the same market forces that affect big tech companies can also affect cryptocurrencies. Although cryptocurrencies have traditionally been seen as separate from the market, they cannot escape the war in Ukraine and other major headwinds.

“Higher interest rates are making everyone more aware of the investment and the choices they are making when it comes to momentum-driven assets,” he said. “It doesn’t take much to send these kinds of markets the other way.”

Not a recession, but a slowdown

While many are panicking, Wieser is quick to note that it’s not as if these companies are failing — it’s that the massive growth seen over the past two years isn’t sustainable.

“Slowing down is not the same as going back,” he said. “If we grow 20-30%, and then suddenly only grow 10%, it might seem like a big change. But it’s not a crash.”

While tech companies appear to be slowing hiring patterns, there are still no indications that mass layoffs are on the horizon for leading companies like Meta, Twitter and Amazon — all of whom have expressed no plans to downsize.

However, rumors have spread that big cuts are looming for small businesses. “The next 6-8 weeks will be a bloodbath,” Tweeted by JD RossCo-founder of the music investment platform Royal. “I hear rumors that many companies are preparing to lay off 20-40% of their team.”

The slowdown comes from a confluence of factors affecting companies across the market, said Shah of Publications: inflation, the war in Ukraine, supply chain problems, and changing consumer behavior. Big tech will likely remain a “safe haven” – long into our digital lives and more vulnerable to weathering the market storm. But how the industry will change larger remains to be seen.

“Tech stocks are on a bumpy road,” he said.

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