It's a hard landing.
Indeed, it's a very difficult return to earth, whose echo resounds throughout Silicon Valley.
The golden financial days of the covid-19 pandemic are over. Now back to reality, and it is a reality that has shaken the giants of tech very strongly.
Amazon (AMZN), Alphabet (GOOGL), Microsoft (MSFT) and Meta Platforms (META) confirmed this week that the growth they had experienced, during the two years the world had been in lockdown, is in the rear view mirror.
During that period, companies, governments and consumers only communicated through technology, making it a predominant tool in our lives.
Companies had to buy tech equipment for their employees working from home, pay subscriptions to tech services like Teams, Zoom and others, to run their business. They also needed to strengthen their IT networks against cyberattacks and hacks by paying for services provided by tech companies.
Tough Environment
Consumers deserted face-to-face businesses of all kinds, taking refuge in tech, to do their grocery shopping, buy clothes, have fun, etc. Big and small businesses were forced to promote their products and services online to create awareness, build customer loyalty and attract new customers.
The stimulus packages offered by governments to prevent the global economy from falling into a deep recession, flooded consumers with money, fueling their spending.
But inflation, which is at its highest in 40 years, now threatens to plunge the economy into a recession. To this risk, one must add the Russia-Ukraine war in Europe which has caused an energy crisis.
Tensions between the United States and China, the world's two largest economies are also at their highest in years, raising new uncertainties over supply chains.
Basically, the macroeconomic environment and geopolitical issues have obscured the horizon. The question that investors are now asking is whether we will simply have a prolonged economic slowdown or a recession. In both cases, they anticipate that companies will delay their investments and that consumers will hesitate to make purchases that are not necessary. And in the latter case, it is the tech products that are often impacted first.
"While we are encouraged by our progress across the business, the macroeconomic environment remains challenging worldwide," Amazon Chief Financial Officer Brian Olsavsky told analysts on October 27, during the third-quarter earnings' call.
He added: "The continuing impacts of broad-scale inflation, heightened fuel prices and rising energy costs have impacted our sales growth as consumers assess their purchasing power and organizations of all sizes evaluate their technology and advertising spend."
"As the third quarter progressed, we saw moderating sales growth across many of our businesses, as well as the increased foreign currency headwinds I mentioned earlier, and we expect these impacts to persist throughout the fourth quarter."
$560 Billion in Market Value Gone
The company, founded by tech billionaire Jeff Bezos, said in a press release that it expects fourth-quarter revenue between $140 billion and $148 billion, representing a year-over-year growth of 2% to 8%. This is significantly below analysts' expectations of $155.15 billion.
Amazon earnings cap a disastrous earnings season for Big Tech. Microsoft, Alphabet and Meta Platforms were all disappointing, while Apple (AAPL) warned it was still affected by supply chain disruptions.
"In the third quarter, we did see a pullback in spending by some advertisers in certain areas and search ads," said Philipp Schindler, Alphabet's Senior Vice President and Chief Business Officer. "For example, in financial services, we saw a pullback in the insurance, loan, mortgage and crypto subcategories."
"There's no question we're operating in an uncertain environment, and that businesses, big and small, continue to get tested in new and different ways, depending on where they are in the world."
It is therefore no surprise that the market value of key members of Big Tech has collapsed in one week. Amazon lost $240 billion, Alphabet $116 billion, Microsoft $115 billion and Meta Platforms $86.20 billion at the time of writing.
In all, the four members of Big Tech saw their combined market value drop by nearly $560 billion in one week.
