I’m not going to talk about Elon Musk and Twitter in this article.
Okay, just a little bit: Elon and Twitter are front page news today, but they’re not the most important news in the tech business. *
The stories that really matter for technology and business are: The consumer goods giants that have underpinned the tech business for years are not going away, but their rocket ship days seem to be coming to an end. And Wall Street investors who wanted that ride are pulling back.
We’ve been watching this move for much of a year as tech stocks have fallen, but this week Alphabet, Meta and Amazon stocks all crashed, wiping out $400 billion in value across the sector. It was noticed at times.
While each company in the tech industry has different reasons to worry investors, I believe the underlying problem is the same. They’re a mature company that no longer impresses Wall Street with the phenomenal growth of their core business. None of them appear to have new mega-business down the pike. Alphabet, for example, posted his 6% revenue growth. This is the weakest quarter in a decade.
So in Big Tech today, you get what you see. Much like Coca-Cola and Walgreens, no one expected Coke sales to explode, no matter how good the new version of his Coke Zero was.
Of course, big companies are trying to convince investors. This is the Metaverse/VR/AR goggles/glasses story that Meta and Apple and Microsoft are all playing around with. That means a new revolution in computing that will generate massive amounts of economic activity. in the center of it.
perhaps! However, they are very expensive and highly speculative, and meanwhile all these companies are focused on extracting additional revenue and profits from their existing businesses. There is an increasing focus on turning it into a business. Meta is an effort to turn aging Facebook and Instagram properties into TikTok clones. And at Alphabet, where 60% of his revenue still comes from the search advertising business he created 22 years ago, it was an attempt to highlight the nearly 20-year-old YouTube.
These are not entirely new problems. In his 15 years, people have been wondering when Apple would develop another world-changing product on the scale of the iPhone (answer: never).
But it’s no coincidence that technology stocks have started to plummet, especially since the Great Recession of 2008, when the U.S. government cut lending rates to or near zero and held them there until recently. When money is essentially free, investors go looking for more speculative bets. This increases the value of the company you are betting on and encourages more investors to repeat the same thing.
Now that everyone is sober, something as highly fanciful as cryptocurrency is out of the question. And why aren’t the really big, really profitable giant tech companies going away? A rough way to measure investor enthusiasm is a ratio that compares the value of a company’s share price to its earnings. For example, his price/earnings ratio at the end of 2020 on Meta was 32.75. Now he’s down to 9.434. At the same time, Alphabet fell from 34.32 to 19.14. (But Amazon remained the same after its recent plunge.)
And I would argue that there is another agent showing that these formerly dynamic companies have hit a wall. For example, almost every man who started and ran a big tech company leaves the best work to professional managers. I enjoy doing other things.
I’m not prone to optimism, but I can definitely rotate this as a half-full glass if need be…we’ll keep our headcount constant for at least the next 15 months. That’s due to a combination of very limited hiring, replenishment of retiring employees, and pushing other employees out the door.
But in theory, any would-be Facebook employee who wasn’t hired there could end up somewhere else interesting. One of his over-the-top vibrant ideas for Web3 over the past few years is that the tech giants have gotten so big and powerful that it’s impossible to build anything new without their permission. It was. It’s still big and powerful, but it may not appeal to those who want to build something new.
* This is an interesting story, funny and scary. If you want to know what happens next, Nilay Patel is a good place to start.
