‘Unstoppable Until They’re No More’: Are Technology Market Losses Signs of Bankruptcy? † Technology

Jeff Bezos knew this day would come. In April the Amazon boss warned of an impending slowdown in the market, tweeting that the epic tech boom that has engulfed the past two years couldn’t last forever.

“Most people dramatically underestimate the remarkableness of these bull runs,” he said. “Things like that are unstoppable…until they aren’t.

“Markets learn,” Bezos added. “The lessons can be painful.”

For years, the tech industry has led the stock market with failed profits, fueled by a pandemic that has moved much of the world online. Now that has all changed, with trillions in market value lost in recent weeks. Once hot startups are being dumped by investors, and even the tech giants seen as stable investments have failed.

Apple is no longer the world’s most valuable company after losing $200 billion in market value this week. It joins a number of other tech companies in a slump that began in late 2021 and plunged the larger Nasdaq Composite by more than 13% in April — a drop of more than 30% from the previous year’s record highs.

Meta lost a record $230 billion in market value in February after a disappointing earnings report that revealed its Facebook platform had experienced its first-ever user decline. Amazon reported its first loss since 2015 in its most recent earnings report last month. Alphabet’s revenue lagged in the first quarter report. Smaller businesses are also struggling, with a pandemic success story seeing Peloton fall 20% this week as demand for indoor fitness equipment plummeted.

Hiring freezes underline a post-pandemic slowdown

Twitter announced in an internal memo on Thursday that it would freeze new hires, and Meta did the same last week, citing an expense guideline in its recent earnings report. Amazon said in a recent earnings call that its warehouses were “overstaffed” and while it isn’t considering layoffs, “it is working to fix that.”

Startups are seeing similar trends, with the layoff 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 period of 2021.

The hiring slowdown comes even as the broader market is experiencing employment growth, with 431,000 jobs in April. The freeze is proof that the market boom was the result of a confluence of unique factors and not a long-term trend, said Haris Anwar, Investing.com senior analyst.

“General market sentiment is reversing from the very optimistic sentiment we have seen during the pandemic, where companies saw massive demand increase. In the post-pandemic world, that demand is now coming to a more normalized level,” he said.

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

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

“Revenues have fallen, costs have risen and technology companies are going to do what any other company in this situation would do: cut costs by freezing hiring, eliminate costs like unused real estate, push for increased productivity and reexamine investments,” he said.

“Is this a technical failure? It remains to be seen,” he added.

Other factors that play a role

Pandemic recovery isn’t the only component slowing runaway growth for tech companies, experts say. The war in Ukraine has had an effect on advertising spending and has accelerated the supply chain problems already caused by the pandemic, an issue mentioned in a number of recent earnings calls.

“The war in Ukraine, which is a real humanitarian tragedy, has also impacted our business,” Mark Zuckerberg, CEO of Meta, said in a phone call with investors accompanying the first quarter earnings report. “We have been blocked in Russia and we have decided to stop accepting ads from Russian advertisers worldwide. We have also seen effects on business worldwide after the start of the war.”

Such headwinds are likely to deter investors, said Brian Wieser, GroupM’s global president for business intelligence, accelerating the slowdown.

“There is an overwhelming sense of fear and anxiety among many decision-makers about all economic matters right now,” he said. “The war certainly catalyzed a lot of it, but inflation and supply chain problems were already an issue.”

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

Fears that the Federal Reserve will continue to raise interest rates to the point where the economy will slide into recession is further affecting investors’ decisions, Anwar said, as many shy away from high-growth technology stocks.

“Markets always think in advance,” he said. “Many investors act as if depression is a foregone conclusion. Will that happen? It’s a big question mark. But that’s why we’re seeing an exodus from these stocks.”

Crypto takes a hit

The technological slowdown has not been limited to the traditional market. When cryptocurrencies took a major nosedive this week and Bitcoin dropped well below $30,000 for the first time in nearly a year, wiping more than $200 billion from the broader market, some declared that “crypto is dead.”

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

The fall has shocked investors that this may not be true, said Tammy Da Costa, an analyst at DailyFX, as evidenced by Terra’s collapse coupled with a dismal earnings report from major crypto exchange Coinbase.

“A major concern is that many retailers have invested in bitcoin and cryptos in an effort to generate higher returns in a low-interest-rate environment,” he said. “As price pressures mount and the cost of living continues to rise, fears [have raised] that there could be a system shock if major institutions continue to withdraw from their crypto wallets.”

Aside from digital currency blunders, the same market forces that affect large tech companies could also affect digital currencies, Wieser said. Although crypto has traditionally been seen as disconnected 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 assets,” he said. “It doesn’t take much to steer these kinds of markets the other way.”

Not a breakdown, just a delay

While many panic, Wieser is quick to point out that it’s not that these companies are failing, but that the explosive growth of the past two years is unsustainable.

“Delay is not the same as decline,” he said. “If you’ve grown 20-30%, and suddenly you’re only growing 10%, that can be a significant change. But it’s not a crash.”

While tech companies appear to be slowing hiring patterns, there’s no indication yet that mass layoffs are imminent for leading companies like Meta, Twitter and Amazon — all of which have said they have no plans to downsize.

Still, there are rumors that big cuts are on the way for smaller companies. “The next 6-8 weeks will be a bloodbath”, tweeted JD Ross, co-founder of the music investment platform Royal. “I hear rumors of a lot of companies preparing to lay off 20-40% of their team.”

The slowdown is due to a confluence of factors affecting businesses across the market, Publicis Sapient’s Shah said: inflation, the war in Ukraine, supply chain problems and changing consumer behavior. Big tech companies are likely to remain “safe havens” – long woven into our digital lives and more likely to weather the market storm. But how the larger industry will be changed remains to be seen.

“Tech stocks are going to have a bumpy ride,” he said.

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