Massive Tech in disaster? Inventory crash ‘burned’ $800 billion in a single week
- October 30, 2022
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With the sharp fall in the price of shares, American technology companies have already lost the same market value as Switzerland’s GDP
History has known moments of intense and sudden wealth destruction, usually linked to major natural disasters. like the Katrina hurricane, in 2005, which cost more than $173 billion. or the fukushima earthquake, in 2010, which caused $434 billion in damage. or the earthquake in Sichuan, in China in 2008, which cost US$186 billion.
However, there are cases in which the financial market manages to provoke an even greater destruction of wealth. How was this week, where in a few days the technology companies “burned” over $800 billion in market value. A value greater than the cost of the disaster of Chernobyl, at Soviet Union, in 1986. Or also to the Gross Domestic Product (GDP) of an economic power such as Switzerland.
It was enough to release the third quarter results that the companies’ shares, which were already in decline, began to fall even faster. only the Goal (M1TA34), parent company of Facebook, has dropped more than 25% in a few hours, below $100 a share. The lowest value since 2016.
Since the beginning of the year, Meta alone has lost US$ 700 billion, and the fall in its shares seems to have no brakes. So much so that some analysts already write reports where they openly define the company as “a giant with feet of clay”.
The beginning of the collapse coincides with the announcement of Mark Zuckerberg that the company would invest heavily – already US$ 27 billion – in the Metaverse. The virtual reality that the founder of Facebook is sure will replace real reality in a few years.
The announcement was made during the Mobile World Congress of Barcelona, the most important fair of mobile telephony in the world, where a photo shows Zuckerberg parading among the unsuspecting guests who couldn’t see him because their faces were covered in augmented reality goggles from the Samsung. A powerful and somewhat disturbing image.
What investors are worried about is the profit liquid of Meta, which fell 52% to US$ 4.4 billion. Revenue also fell 4%, for the second time in the company’s history and for the second straight quarter, to $27.7 billion. Macroeconomic conditions are not helping, but so is competition from TikTok, Apple’s operating system changes that limit user data collection and the decline in online advertising are contributing to this negative result.
According to a recent report by the Itaú BBA, Zuckerberg would be insisting so much on the Metaverse because it would control “all three variables” – behavioral, transactional and stock – of this virtual universe. In other words, it would have full control over how the user acts in the Metaverse, how they buy things in the Metaverse, and even the user itself. Metaverse. But not everyone agrees that this would be the best of all possible worlds. And that’s why, after a year, adhesions to the new project are still very low among Facebook users.
Amazon (AMZO34), Alphabet (GOGL34) and Apple (APPL34) also suffered in the quarter.
Stock market losses accelerated last Thursday night after the Amazon (AMZO34) shocked Wall Street with a weak revenue forecast for its all-important fourth quarter of the year, when Black Friday, Christmas and New Year’s shopping typically drive its revenue.
The e-commerce giant indicated that the revenue in the period will likely be US$ 15 billion below the US$ 155 billion forecast by analysts. The market didn’t like it, and in post-market trading, shares in the company founded by Jeff Bezos dropped 12.73%.
THE Alphabet (GOGL34), Google’s parent company also posted negative results for the quarter. Revenues rose 6% to $69.1 billion, the slowest growth rate since 2013 except for a brief contraction at the start of the pandemic, and below analyst expectations. For the first time, YouTube saw its advertising revenue drop 2% to $7.1 billion. The video platform alphabet also suffers from competition from TikTok, like Meta’s apps.
“It is a difficult time for the advertising market” he summarized Sundar Pichai, CEO of Google and its parent alphabet, which is also in the eye of the hurricane on Wall Street.
THE Microsoft (MSFT34), on the other hand, exceeded expectations with profits and revenues, but it didn’t hit them with the cloud segment, which earned about US$ 20.33 billion, up 20%, but below the US$ 20.36 billion expected by the market. Negative sign for Windows license sales to device manufacturers (-15% year-over-year, the worst result since 2015) due to the slowdown in the PC market.
Amazon and Microsoft have tried to explain that growth in their cloud computing business is slowing more than expected as customers are more aware of spending. The news raised market fears about the resilience of some of the businesses deemed most resilient in a time of economic downturn, including cloud computing and search advertising. Google.
just the Apple (APPL34) managed to maintain their positions, reporting revenues and earnings above analysts’ expectations, and avoiding disappointments. The news contributed to a partial rally in shares in the iPhones at the end of the last trading session. This likely reflects the little influence prices have on sales, thanks to its strong brand and popular products, and the relative loyalty of its customer base.
Big Tech Crisis warns analysts
However, even if the company founded by Steve Jobs registered a positive result, it was not enough to save the American financial market from the massive fall in the value of the shares of the Big Techs. A debacle that is worrying many analysts. Not only because of the similarities with another crisis in the technology sector, that of dot com, that devastated Wall street in the early 2000s, but also due to the fact that this drop could be more than a conjunctural moment, but a symptom of the loss of the compass of the growth of Big Techs.
After all, there are no guarantees that the growth model of Facebook or the Google – which has proven successful in recent years – will continue to be the best recipe for revenue and profit growth.
There is a future for Big Techs. And it couldn’t be different for companies that bill billions of dollars. However, for now, it can only be glimpsed.