In the two decades following the dotcom crash, investors in America are preparing themselves for another bubble to burst. Yet year after year, tech firms like Facebook and Alphabet continued to expand, while investors maintained confidence that it would continue. The 2008 financial crisis was also barely recorded as a blip. But now there is a serious discussion among entrepreneurs and investors about the fact that there is a possibility of improvement.
Given how well technology is woven into our lives – and what it has – the sweeping tech boom over the past two decades looks set to continue for a long time. But investors must navigate the novelty of uncertainty. The Nasdaq 100 is already down about 23% since November 2021. This is the same decline as it was with the onset of Kovid in March 2020. If it slides a few percentage points higher, it will be the biggest drop in a year. So-called FAANG stocks, including Facebook parent meta platforms, Apple, Amazon, Netflix and Google, on Friday lost nearly $2 trillion in value since the start of 2022.
Note that markets have never seen infection with a pandemic that has kept people at home. They have no reference point. Now companies and investors are trying to process the explosion of stalled demand, as consumers rush to buy things and embark on a ‘revenge journey’. As companies hardest hit by the pandemic have their fortunes swinging back, tech’s lockdown darlings are suffering from a revaluation of value that arguably looks overdue for some. Take Spotify. On Friday, its shares were trading as low as $105, down 57% in 2022, despite recording its biggest increase in profit in the previous quarter and a 15% annual increase in customers to 182 million. Despite steady quarterly net income growth, Zoom has lost 45% of its value since the start of the year. Zoom’s decline seems particularly odd, considering how many businesses continue to use its product for meetings, even as their employees return to offices.
But while not everyone deserves to suffer from sweeping reform, it was bound to happen. Many technical evaluations were uncertain. Should Tesla really be worth more than six times the combined market value of General Motors and Ford Motor Co.? And given that it took almost four decades for Apple to reach a market valuation of $1 trillion, should it have taken less than four years to reach $3 trillion?
Maybe not. Now the signs are pointing to a change in the mood of tech firms and those who invest in them. Facebook is stopping hiring, which was a huge possibility earlier. The company attributed its slowest revenue growth in 10 years last quarter to broader macro-economic challenges and changes in Apple’s privacy. But its falling shares and reputation for causing psychological harm to users of its platforms are also making it harder to attract the talented engineers that Mark Zuckerberg desperately needs to realize his Metaverse ambitions. Little wonder the company is now treading more cautiously in the metaverse, having also said it will invest less in virtual reality than it plans.
SPAC (remember them?) meanwhile has dwindled in numbers, leaving little late exits for tech companies so far this year. To scoff as much as you like at the ‘blank check’ proponents of companies that didn’t really have any business going public, but helped stymie the tech market reform we’ve now seen for at least half a year or more. looking from.
With many SPAC investors burned by the misadventure, venture capitalists may also be ready to rein in their activity in private markets. A venture capital investor in London said he has seen three separate funding deals for tech startups, worth around $5 million, over the past few weeks. “These were deals that would have happened three years ago,” he said, requesting anonymity because of his involvement in founding a new stealth startup. “Everyone is battling the hatch.”
Layoffs, which history tells us tend to snowball in an industry, are on the rise among tech startups and new public tech firms: Celebrity shoutout app Cameo last week said it was cutting about 90 jobs; A week ago, US fintech darling Robinhood Markets said it would cut about 9% of its 3,400-person workforce.
The current slump is likely not over, as several factors—high inflation, supply chain disruption and a prolonged revaluation on price—promise to stick around. But with technology products so deeply intertwined in our daily infrastructure, technical valuations will continue to grow for a long period of time. This is probably not a precursor to an explosion, but a temporary deflation.
Equity investors must now grapple with an unfamiliar era of skepticism for technology, while venture capital funds raise cash to exit the next few years. Startups will have to do the same. It will be painful, but it won’t last forever.
Parmy Olson is a Bloomberg Opinion columnist covering technology.