Jeff Bezos knew this day would come. In April, the head of Amazon warned of an impending market downturn, tweeting that the epic tech boom experienced over the last two years couldn’t last forever.
“Most people dramatically underestimate how remarkable this lockdown is,” he said. “Those things are unstoppable…until they’re not.
“Markets teach,” Bezos added. “Lessons can be painful.”
For years, the tech industry has led the stock market with big gains, buoyed by a pandemic that has moved much of the world online. Now all that has changed, with trillions in market value lost in recent weeks. Investors are abandoning once-popular startups, and even tech giants seen as stable investments have faltered.
Apple is no longer the most valuable company in the world, after losing $200 billion in market value this week. It joins other tech companies in a slump that began in late 2021 and caused the largest Nasdaq Composite to drop more than 13% in April, a drop of more than 30% from all-time highs a year earlier.
Meta lost a record $230 billion in market value in February after a disappointing earnings report revealed that its Facebook platform had seen its first decline in users. Amazon reported its first loss since 2015 in its most recent earnings report last month. Alphabet’s revenue fell short in its first-quarter report. Smaller companies are also struggling, with the Peloton pandemic success story, which saw shares fall 20% this week as demand for indoor exercise equipment fell.
Hiring freezes underscore 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 spending guidance given in its recent earnings report. Amazon said in a recent earnings call that its warehouses were “overstaffed” and while it’s not considering layoffs, it’s “working to remedy it.”
Startups are seeing similar trends, with the layoff tracking site Layoffs.fyi showing that at least 55 tech companies have reported layoffs since the beginning of 2022, compared to just 25 in the same period in 2021.
The hiring slowdown comes even as the broader market sees job growth, adding 431,000 jobs in April. The freeze is proof that the market boom came from a confluence of single factors and was not a long-term trend, Investing.com Senior Analyst Haris Anwar said.
“General market sentiments are reversing from the very bullish sentiment we have seen during the pandemic, during which companies saw a huge boom in demand. In the post-pandemic world, that demand is now reaching a more normalized level,” he said.
When Covid-19 hit in early 2020, companies like Peloton, Zoom and Netflix grew as offices closed and people spent more time at home. Zoom saw its value explode more than 500% in a year, but in recent days it has seen shares plunge to near 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 it reported disappointing results on April 19.
This kind of growth can’t be predicted or sustained forever, said Raj Shah, an analyst at digital transformation consultancy Publicis Sapient.
“Revenues are down, costs are up, and tech companies are going to do what any other company in this situation would do: cut costs by freezing hiring, shedding costs like unused real estate, driving higher productivity and re-examine investments. ,” he said.
“Is this a technological failure? It remains to be seen,” she added.
Other factors at play
Recovery from the pandemic isn’t the only component holding back runaway growth at tech companies, experts say. The war in Ukraine has had an effect on ad spending and has accelerated supply chain problems already introduced by the pandemic, a difficulty cited in several recent earnings calls.
“The war in Ukraine, which is a true tragedy on a humanitarian level, has also had an impact on our business,” Meta CEO Mark Zuckerberg said on a call with investors that accompanied his first-quarter earnings report. “We were blocked in Russia and decided to stop accepting ads from Russian advertisers globally. We have also seen effects on business globally after the start of the war.”
Such headwinds are likely to spook investors, said Brian Wieser, GroupM’s global president of business intelligence, accelerating the slowdown.
“There is an overwhelming sense of fear and concern that a lot of decision makers have around all things economic right now,” he said. “The war certainly catalyzed a lot, but inflation and supply chain issues were already a problem.”
US inflation was higher than expected in April, approaching a 30-year high at 8.3%. Inflation broadly affects consumer spending, which can have a big 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 slips into recession are further weighing on investors’ decisions, Anwar said, as many turn away from high-growth tech stocks.
“Markets always think ahead,” he said. “Many investors are acting as if the depression is a done deal. It will 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. As cryptocurrencies took a nosedive this week, with Bitcoin dipping well below $30,000 for the first time in nearly a year, wiping out over $200 billion from the overall market, some declared that “cryptocurrency is dead.” .
Crypto’s stumble has been attributed, in part, to a recent market shake-up when a popular “stablecoin” called TerraUSD crashed. Stablecoins, a type of digital currency pegged to the US dollar, are believed to be less volatile than traditional cryptocurrencies.
Its fall has scared investors that this may not be true, said DailyFX analyst Tammy Da Costa, as evidenced by the collapse of Terra coupled with a dismal earnings report from major cryptocurrency exchange Coinbase.
“A big concern is that many retail traders have invested in bitcoin and crypto in an effort to receive higher returns in a low interest rate environment,” he said. “Now, as price pressures mount and the cost of living continues to rise, fears [have raised] that a systemic shock may occur if large institutions continue to withdraw funds from their crypto portfolios.”
Aside from digital currency bugs, the same market forces that influence big tech companies could also be affecting digital currencies, Wieser said. Although cryptocurrencies have traditionally been thought of as separate from the market, they cannot escape the war in Ukraine and other major headwinds.
“Higher interest rates make everyone more mindful about investing and the decisions they make when it comes to momentum-driven assets,” he said. “It doesn’t take much to send these kinds of markets the other way.”
It’s not a downturn, but a slowdown
While many are panicking, Wieser is quick to point out that it’s not that these companies are failing, but rather that the explosive growth seen in the past two years is not sustainable.
“Slowdown is not the same as decline,” he said. “If you’ve grown 20-30% and all of a sudden you’re only growing 10%, that might seem like a significant change. But it’s not an accident.”
While tech companies appear to be slowing hiring patterns, there are no signs yet of massive layoffs on the horizon for leading companies like Meta, Twitter and Amazon, all of which have said they have no plans to downsize.
Still, rumors have been circulating that big cuts are coming for smaller companies. “The next 6-8 weeks will be a bloodbath,” JD Ross tweeted, co-founder of the music investment platform Royal. “I hear rumors about a lot of companies preparing to lay off 20-40% of their team.”
The slowdown stems from a confluence of factors affecting businesses across the market, Publicis Sapient’s Shah said: inflation, the war in Ukraine, supply chain issues and changes in consumer behavior. Big tech companies will likely remain “safe harbors,” long embedded in our digital lives and more likely to weather the market storm. But how the larger industry will be altered remains to be seen.
“Tech stocks are going to have a bumpy ride,” he said.