Why Tech Giants Find It Hard To Escape Global Economic Slowdown

Collins Ogutu | 1 year ago
Why Tech giants Find It Hard To Escape Global Economic Slowdown

Growth is sputtering across the technology world, and even usually invincible companies like Apple and Amazon can’t escape the slowdown.

With many of the biggest tech giants poised to report earnings in the next two weeks, investors are bracing for mostly bad news. 

Amazon is expected to grow at its slowest rate in decades. Chipmakers are lurching from boom times to a potential glut. And gig-economy companies such as Uber Technologies Inc. and DoorDash Inc. could be victims of consumer budget-cutting during a shaky economy.

Then there’s the pullback in online advertising, a shift that already ravaged sales of Snap  and Twitter last week and is poised to weigh on results from Facebook parent Meta Platforms on Wednesday.

The question for investors is how much of the slowdown is already reflected in stock prices. 

The tech-heavy U.S.-based Nasdaq 100 Index is down 24 percent this year, Amazon is down a bit more than that and Meta has lost half its value.

Here is how tech industries are expected to fare as corporate results trickle in over the coming days:

Research firm Magna estimates that the U.S. digital ad market increased just 11 percent in the second quarter, a steep deceleration from 58 percent in the same period a year earlier. Growth will be especially anemic for social media ads, which have been hurt by Apple privacy changes that make it harder to target customers.

That’s left an increasingly crowded field of tech companies vying for a piece of the pie. Google and Facebook, which renamed itself Meta last year, were long the kings of online advertising. But Amazon and TikTok are now making inroads.

Meta is poised to report its first period of zero sales growth since the company’s initial public offering a decade ago, along with a 33 percent decrease in net income. Alphabet Inc., Google’s parent company, is expected to post its slowest sales increase since the start of the pandemic in 2020.

Facebook and Google “seem to be so much on the back foot right now,” said Eric Franchi, a general partner at AperiamVentures, a venture capital firm that invests in marketing and media startups. “Things have shifted really fast.”

Amazon is nott just facing a historic slowdown in sales growth  it’s dealing with a hangover from its pandemic investments. When e-commerce spending surged after the COVID-19 outbreak, the company went into building mode, doubling its warehouse footprint to meet demand. 

Now that shoppers have gone back to physical stores, Amazon has too much capacity. So it’s subleasing space and reducing its hourly workforce through attrition.

In the meantime, profit has taken a hit. Analysts are predicting earnings of 14 cents per share in the second quarter, with total net income expected to decline 82 percent from a year earlier. Profitability is expected to rebound in the second half of the year as Amazon slims down.

If there’s a full-blown recession, Amazon could still fare better than rivals — thanks to its reputation for low prices. During the global financial crisis in 2008, the company grew faster than the overall e-commerce industry.

For now, Amazon’s growth has slowed to a trickle. Revenue is projected to rise by 6 percent, the lowest in any quarter since 2001. And if you just look at Amazon’s online stores segment, the sales are expected to decline for a third straight quarter. The company’s cloud services division should continue to be a bright spot during the slump, helping bolster results.

Apple is expected to post its slowest quarterly sales growth since the early days of the pandemic. It already warned that supply-chain snags would reduce sales by much as Ksh.948.7 billion ($8 billion) in the period, and now investors are worried about ebbing consumer demand as well.

In any case, Apple’s fiscal third quarter is a tough comparison with the year-earlier period, when sales jumped 36 percent helped by customers stocking up on equipment to outfit their home offices during the pandemic.

If there’s any growth in Apple’s business, it will be in online services. 

Analysts expect a record for the June quarter in that category, with sales reaching nearly 20 billion U.S. dollars.

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