Tech stocks in a valley
Just when Silicon Valley thought things couldn’t get any worse, they did. Meta tanked over 25 per cent on Wall Street yesterday, losing around $200bn (£147bn) in value, dragging the tech-heavy Nasdaq down along with it.
Meta’s plunge, driven by a disappointing update after the bell on Wednesday evening, is however just the tip of an already slippery iceberg for US big tech.
It started with Netflix, which warned investors against dwindling subscriber growth this year, sending its stock price tumbling more than 20 per cent and wiping around $55bn (£40bn) from its market value.
Then came Spotify, which echoed a gloomy 2022 outlook, alongside an even bigger existential threat following an unseemly row between its star podcaster Joe Rogan and musicians Neil Young and Joni Mitchell over Covid-19 misinformation.
Like its video streaming cousin, Spotify’s results triggered shares to crash as much as 23 per cent.
It comes as Silicon Valley faces increasing pressure as interest rates soar and investors wait for policy tightening at the Fed to undermine the notoriously rich valuations.
And the pandemic coming to an end, which made brands like Peloton and Zoom household names, has seen investors voting with their cash on work-from-home friendly tech stocks.
Nasdaq fell more than eight per cent in January: the worst monthly drop since the end of 2019.
Alfonso Marone, UK Head of Deal Advisory for TMT at KPMG UK, described this as an “abrupt correction” for tech stocks.
Nonetheless, he told Morning Wire large cap tech was a “varied picture”, and asserted that the sector continues to enjoy “secular tailwinds” from the ‘everything going digital’ move.
This may be the case when you look at Google owner Alphabet’s more optimistic results. It reported a 32 per cent jump in fourth-quarter revenue to $75.3bn (£55.3bn) this week, which although a slowdown from the 41 per cent growth in the preceding three months, was still around $3bn (£2.2bn) more than analysts expected.
Alphabet spent yesterday on the edges of the $2 trillion valuation club.
Equally, Apple recently posted record revenue of $123.9bn (£91bn) in its fourth quarter results, an 11 per cent gain despite global chip shortages.
The iPhone maker’s net profit in the last three months of 2021 jumped 20 per cent to $34.6bn (£25.4bn), well above Wall Street forecasts.
Last week, Microsoft also surpassed top and bottom line estimates, making big moves in the video game space with its $68.7bn (£50.5bn) acquisition of Call of Duty maker Activision Blizzard.
With this in mind, Laura Hoy, equity analyst at Hargreaves Lansdown, told Morning Wire that Meta’s fall from grace has inevitably dragged “quality tech businesses” down with them.
Citing Alphabet and Microsoft as prime examples, Hoy explained how these are companies that are better organised to weather inflation storms, with more robust ad revenue structures compared to Meta. Many investors bailing out on Zuckerberg’s firm yesterday were worried, ironically, about changes to Alphabet-owned Google’s new privacy rules which make targeting more difficult.
Negative publicity doesn’t help, either. The launch of Meta’s ‘Metaverse’ has not been met with universal praise – not least when an investigation revealed sex predators had already moved in.
The on-screen death of the famed Sex in the City character Mr Big after a particularly strenuous Peloton workout is unlikely to have had punters rushing to buy. It appears all is not totally well at the top of tech.