Big Tech sees tough times ahead

The rise and rise of big tech over the past decade has been phenomenal. Ten years ago the combined market capitalisation of the Big Tech companies represented by FAANGM (Facebook, Apple, Amazon, Netflix, Google and Microsoft) was about $1.1 trillion, and represented just under 10% of the US stock market (S&P500) by value. The combined market valuation of these companies peaked at the very end of 2021 at $10.2 trillion and at this point represented over a quarter of the US stock market (S&P500) by value. From the end of 2012 to the end of 2021 the value of this group grew by 10x, an annual growth rate of 28%. Over the long term the stock market has grown by about 10% per annum including dividends. Tech stocks have crashed in 2022, with the value of this group falling 36% to date which is about double the rate of the rest of the US stock market (S&P500). The fall of big tech is significant but pales in comparison to the growth over the past decade, even incorporating this recent fall, a period in which FAANGM stock values grew by 7x or 20% pa. These companies still represent 20% of the US stock market (S&P500) by value.

These unprecedented times impact the Tech Giants, including Amazon, Meta, and others. Tech companies?that enjoyed strong growth in the early days of the pandemic are feeling the effects of a new reality of?high inflation, rising interest rates, currency headwinds, and other issues on their income statements. The slowdown in personal computer sales and digital advertising seen earlier this year appears to be spreading to areas such as cloud computing that were thought to be resistant to economic weakness. ?? Amazon’s?sales forecast for the current quarter, for example, missed Wall Street expectations by up to $15 billion, causing its shares to fall more than 10% in morning trading Friday ?? During a companywide meeting Thursday, Google CEO?Sundar Pichai?told employees the company had grown too fast and needed to be more responsible with spending ?? Meta’s?Mark Zuckerberg?said the social media giant’s workforce of 87,000-plus employees could be smaller next year ?? In a rare turnabout, Amazon’s AWS cloud services unit underperformed its retail operations. Sales in that segment rose 27% year-over-year to $20.5 billion, and operating income fell 9.6% to $5.4 billion The overall macroeconomic climate has necessitated that the global tech giants take a more cautious, measured, and strategic approach with their investments going into 2023. Throughout the tech industry, innovation will continue to be imperative. However, there will have to be a logical assessment of the tools, capabilities, and technologies necessary to fuel this revenue growth. What are your thoughts? Please take a look at the comments below for the The Wall Street Journal and Retail Dive: Retail News and Trends articles. #inflation #economy #techgiants #disruption #macroeconomic #supplychain #technology #capabilities #tools #processes #operationgmodel #amazon #facebook #meta #google #innovation #retail #growth #aws #trading #investments

Amazon's weak Q4 Guidance should spook investors. "Worst Holiday Season" ever? Really? While Earnings have been strong, there's also been signs that growth is slowing to an alarming degree. Amazon is a case in point, today its stock will also be under tremendous pressure. Amazon said it expects to post fourth-quarter revenue between $140 billion and $148 billion, representing year-over-year growth of 2% to 8%. Meanwhile it over-hired during the pandemic boom, now its bust cycle begins and it's going to get messy. #Amazon #retail #recession #stagflation #economy #stocks #Q4guidance BigTech is taking a hit on the chin, with Netflix, Meta, Shopify and others already showing a great re-set with an Ads and slowdown that is pretty significant for the likes of YouTube, Google, Meta and its cohort. But when Amazon's guidance is poor, that's a verdict on American consumerism as a whole is it not? Let's be honest.

It's somewhat interesting that stocks in Amazon, Netflix, Teladoc Health, Zoom, Peloton, Docusign, Zillow, Roku, Facebook ( Meta) are all now far cheaper than they were before the pandemic. These "stay at home" stocks exploded in 2020, and it was assumed we'd be thrust forward into the future. A world where we'd buy ever more things online, see doctors remotely, do legal paperwork without wet signatures. We'd watch movies at home not in movie theatres, we do our jobs on video calls, we'd all move to the countryside and buy homes viewed online by Google Hangouts...... and then it turns out not so much. Turns out hotels are full, airlines are thriving, retail footfall has recovered, few retailers went bankrupt and life pretty much stayed like before. Working from home remains the one long(er) lasting theme. Never bet against human nature.

What do Meta, Uber, Airbnb, and Snap have in common? IPO investors haven’t done very well. What’s going on? 1. Companies are staying private longer than ever All 4 of these companies were darlings of Silicon Valley before they went public. They stayed private while famous: · SNAP: 6 years · META: 8 years · UBER: 10 years · ABNB: 12 years This left the returns to private market investors. The big name tech companies used to IPO sooner: · Netflix: 5 years · Apple: 4 years · Amazon: 3 years · Yahoo: 2 years · Netscape: 2 years This left time for public market investors to capture some of the returns. 2. VCs are identifying and capturing the opportunity Part of the reason these companies could stay private for so long is they were richly funded by VCs. They didn’t need to go public and face the scrutiny of quarterly earnings. VCs are swooping in and capturing the upside. The earliest investors did very well: · ABNB: 60x · META: 50x · SNAP: 35x · UBER: 30x With VCs able to capture so much of the upside, there is very little left for public market investors. Much of this is reflected in IPO valuations. They have been trending higher. Amazon IPO’d at a $438M valuation. That’s why public markets could >1000x their returns. Apple IPO’d at $1.8B. These 4 were much higher: · META: $104B · ABNB: $87B · UBER: $75B · SNAP: $23B Big IPOs have harder times growing from there. 3. Profits aren’t broadly kicking in at these companies yet Outside of META, these companies have had a hangover from their VC funded days. They still have “spend big, grow big” cultures that are only now just turning around. Private market investors reward revenue growth. Public markets reward earnings growth. This focus on profitability has been tough for these companies. · META: continues to feel insecure about its social media future and is investing in the metaverse · ABNB: has just turned the corner towards profitability but lags hotel peers · UBER: is finally turning the corner but has been slow to the party · SNAP: has managed to still be unprofitable as it continues to spend big All 4 companies have their own problems. But the overall lack of growing profits is their biggest struggle with public markets. Google, Microsoft and Apple keep growing profits. This is what makes them public market darlings. For public market investors to get 10x returns, these 4 have to get that trillion-dollar big. Time will tell whether they can change their ways.

Thought of the day The top US technology companies are reporting earnings this week, and so far, the results have been discouraging. Meta Platforms, Facebook's parent, fell almost 20% in after-hours trading on Wednesday, on falling revenue and weaker forward guidance. Earlier in the week, Alphabet fell 6.7% after missing both revenue and earnings estimates and said it was focusing on costs. While Microsoft beat forecasts for both revenue and net income, its stock also fell 6.7% due to lower growth forecasts for its cloud platform. #tech #technologyvaluations #wealthmanagement #ubs #cio

When we interact with business partners, this tough environment in the context of a global recession is definitely something we can't ignore.

A series of quarterly earnings reports is showing that even Silicon Valley’s most powerful companies are feeling the impact of inflation and rising interest rates. #tech #economy #interestrates Tech’s Biggest Companies Are Sending Worrying Signals About the Economy https://lnkd.in/eQyCBuwa