FOR TECHNOLOGY companies, 2022 has been a torrid yr. Hovering inflation has squeezed the longer term earnings worth of speculative firms. Customers have tightened their purse strings. The battle in Ukraine and souring relations between China and the West have added to the uncertainty. Consequently, the worth of high-growth companies that remained unprofitable has plummeted.
That stands in stark distinction to 2021. Again then, the pandemic darlings that aided digital life benefited from nationwide lockdowns and the accompanying shift to extra digital companies. Our “lockdown lunacy index” (see chart) measures the stockmarket worth of 5 such companies, giving every of them equal weight: Netflix, a streaming service; Peloton, a maker of internet-connected train bikes; Robinhood, a stock-trading app; Shopify, an e-commerce platform; and Zoom, a videoconferencing agency. The portfolio’s worth elevated by 320% between the beginning of the pandemic and its peak in August 2021. In the identical interval the tech-heavy Nasdaq rose by simply 88%.
This yr tech companies have needed to reduce. One strategy has been to cease facet tasks. Snap, a social-media agency, binned its selfie drone undertaking. The identical destiny befell a cryptocurrency undertaking at Meta, Fb’s guardian firm, and Stadia, Google’s game-streaming service. One other has been to ditch workers (see chart 2). Crunchbase, a knowledge supplier, estimates that greater than 50,000 American tech personnel have been laid off to this point in 2022. Although that’s solely round 1% of these employed within the expertise sector, some large companies have made deep cuts. In November Meta fired 11,000 people, or 13% of its workers; Stripe, a digital-payments service, reduce 14% of its workforce. Additional belt-tightening could also be required, because the tech crunch continues. Who will come out on top?
Three elements are value contemplating: geography, sector and measurement. The worth of tech companies has tumbled no matter geographic location, as buyers within the varied markets hit by inflation have reassessed future cashflows. On prime of that, even non-Western tech companies earn a big chunk of their income in America or Europe. Areas, subsequently, will most likely matter lower than sectors. Client-facing tech companies had been the primary to see a decline in gross sales in 2022. However makers of enterprise software program, reminiscent of Adobe and Salesforce, ought to fare higher. Enterprise clients have a tendency to enroll to long-term contracts, that are much less delicate to altering client calls for. The expansion of the cloud-computing arms of tech giants, together with Amazon, Google and Microsoft, have proven some indicators of slowing, however are prone to maintain up properly as software program, companies and knowledge proceed to maneuver on-line.
As for measurement, bigger companies are usually extra resilient in a downturn, partly as a result of they maintain loads of money. That helps them rent and retain the very best expertise. It additionally allows them to snap up small companies at discount costs. After the dotcom bust in 2001 and the worldwide monetary disaster of 2007-09, the variety of tech acquisitions shortly returned to its pre-meltdown stage, however the common value of offers fell. Tech’s large shake-up, in different phrases, could assist the business’s giants develop even greater in 2023.■
