Tech stocks are not like the dotcoms of old, but few will escape the pain

After years of spectacular growth and stellar investment returns, some of the biggest companies in the world have been in quiet collapse in recent months, at least as far as the stock market is concerned.

The precipitous Wall Street slides of the Big Tech stocks, many of which double as media stocks that require our eyeballs for revenues, is barely ringing any alarm bells in Silicon Valley, Silicon Docks or anywhere else they employ vast numbers.

And yet the graphs of their share price trajectories reaching abrupt cliffs, after years of scaling ever-higher heights, are dramatic.

In September 2021, the company that is now called Meta Platforms reached a high of $384.33. On Friday the Facebook parent closed at $193.54. Half of its peak value has been wiped away.

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Amazon, a massive employer that competes with everyone from Walmart to Microsoft to Netflix, reached a record high of $3,773.08 last July. Its Friday closing price was $2,151.82, about 43 per cent lower.

Microsoft is down almost 28 per cent since its November 2021 high, Google parent Alphabet has slipped by the same percentage since its February 2022 high and Apple has lost a quarter of its share value since January.

These companies, with the arguable exception of Meta, are not in any especially sticky business position. On the contrary, they remain super-rich behemoths. Their share prices are in reverse because of investors’ broader fears that the slowing global economy might sink into recession just as higher interest rates, introduced by central banks to keep soaring inflation in check, put a temporary dampener on their growth prospects.

Their retreat is part of a wider market meltdown that on Friday saw the S&P 500 briefly enter a bear market, defined as a 20 per cent decline from peak-to-trough. Dotcom memories have been resurfacing lately, with both the S&P 500 and the tech-led Nasdaq index on their longest weekly losing streaks since that bubble burst in 2001. The Dow Jones is on its longest losing streak since 1932.

Nothing stays the same forever. Even the rate at which this group of west coast American companies has evolved beyond the acronym once used to describe them is indicative of their move-fast-and-break-things ascent.

The 2013 coinage FANG stocks – created by Jim Cramer, host of Mad Money on US television channel CNBC – survived Google's corporate name-change to Alphabet, though FANG became FAANG when Apple could no longer be ignored, the original "A" being Amazon.

FAANG wasn’t perfect either, as it excluded an obvious growth stock like Microsoft. Alternative acronyms, including the dire FANMAG, then did the rounds alongside more sober journalistic descriptions like mega-cap stocks, until Facebook changed its name to Meta and the more modest-sized Netflix started to look like a toddler who had been lumped in with the big boys.

Last October Cramer proposed MAMAA stocks, excluding Netflix, but the term has conspicuously failed to take off, mainly because it sounds rubbish.

Pandemic stocks

These mega-caps are clearly in a more secure position than pandemic flirtations such as Zoom, Peloton and Etsy that hit a hot streak during the lockdown economy but are now sweating heavily as investors dump them like paper masks.

Between the elite and the pandemic unravellers, however, there are many other tech and media companies feeling itchy as ever louder warnings of economic calamity amplify their own vulnerabilities.

Since reaching a vertiginous $700.99 along with the market peak in November 2021, Netflix has lost almost three-quarters of its value, with its stock plunging 35 per cent on a single day in April after it reported its first net loss of subscribers in more than a decade. The doomsday narrative this sparked seemed overdone on one level, but there is no denying that Netflix’s bid to recapture lost momentum is much tougher considering consumers worldwide are being whacked by inflation.

In a similarly tricky position is Spotify, which has plunged 72 per cent since February 2021. Disney, another pandemic winner, is down 49 per cent since its March 2021 high, and while its business isn't as wedded to stay-at-home entertainment as Netflix, it is not exactly immune to an economic malaise either.

Elsewhere, Warner Bros Discovery, the owner of streamers HBO Max and Discovery Plus newly formed by a $43 billion (€40 billion) merger, has already waned to $17.74, as of Friday's close, having begun trading at $24.08 in April.

Paramount Global's stock, meanwhile, has shed 36 per cent since its high, though it shot up last week when it emerged Warren Buffett had pumped $2.6 billion into the Hollywood stalwart.

Alongside the falls for Netflix and Spotify, it is the plummets for social media companies Snap and Twitter that catch the eye, with Snap down 72 per cent and Twitter down 48 per cent since their peaks. Both compete with the big three of Alphabet, Meta and (outside Ireland) Amazon for digital advertising revenues, while also having to contend with the super-fast rise of TikTok, privately owned by China's ByteDance.

Advertiser nervousness surrounding Elon Musk’s agreed but not completed takeover of Twitter hasn’t helped it. But there is, of course, another risk. In a time of war, inflation, food security crises, climate emergency and possible global recession, it would not be shocking if advertisers across the board pulled back from spending, prompting difficulties not just for traditional media businesses, but for advertising-dependent tech companies like Twitter, Snap and even Alphabet and Meta.

Job creators

But will any of these attention-snatchers shrink their workforces in response? In short, do their share price woes matter?

Netflix last week made 150 people redundant, a sizeable number that nevertheless must be seen in the context of its rapid expansion to more than 11,000 employees. Twitter, which has its Europe, Middle East and Africa headquarters in Dublin, seems a likely candidate to join it on the job-slashing front, given its ownership is in a state of flux.

The mega-caps, all of them key and recent job creators in Ireland, may be less exposed in a recession and more capable of investing their way through one to consolidate their power. They are not the dotcoms. But that doesn't mean they won't make sudden moves to protect profit margins if things turn really bad.

Sometimes what looks like a rout and smells like a rout is hard to frame as anything other than a rout.