Tech company earnings reports set to bring wave of bad news | Technology sector
As big tech companies prepare to release their quarterly earnings reports starting next week, investors are bracing for bad news.
Several U.S. tech companies have announced slowdowns in hiring and layoffs in recent weeks, and the struggles are expected to continue. “It’s not a good time for technology in general,” said Paul Verna, analyst at Insider Intelligence, a market analysis firm. “There is no doubt that companies will spend less, cut budgets and possibly implement hiring freezes. None of this is good news for the next quarter.
Netflix, Meta, Google, Twitter and Tesla all have earnings calls scheduled in the coming weeks. The reports will come amid growing fears of a recession as inflation continues to rise. On Wednesday, the US Department of Labor released new data showing the consumer price index rose 9.1% in June from the same month a year earlier, marking the biggest rise since 1981.
The rate hike will likely bolster the Federal Reserve’s plans to raise interest rates, which could further spook investors scared of a slowing economic expansion, said Haris Anwar, senior analyst at Investing.com.
“The U.S. economy will fall into recession over the next 12 months if the Fed continues to raise interest rates,” he said. “That’s the main reason we’re seeing a huge sell-off in high-growth stocks as investors move their funds to areas of the market that are relatively safe.”
These high-growth stocks include many stocks in the technology industry. Some investors have predicted a tough earnings season, with Factset researchers anticipating a growth rate of 4.3% in the broader S&P index – the lowest figure since the last quarter of 2020.
The sector has been struggling for months. In April, Amazon executive Jeff Bezos issued a stern warning that the tech boom experienced during the pandemic would soon be coming to an end.
At the start of 2022, Apple lost its status as the world’s most valuable company, contributing to a 13% decline in the largest Nasdaq Composite in April – a drop of more than 30% from the previous year’s records. .
Meanwhile, many big tech companies have announced hiring slowdowns or reductions. Alphabet, Google’s parent company, said in a memo in June that it would “slow the pace of hiring” through 2023. Spotify is cutting hiring plans by 25%, according to Bloomberg.
Cryptocurrency exchange Coinbase announced in June that it would lay off around 18% of its workforce, citing an impending recession. On June 3, Tesla informed workers that it planned to lay off 10% of its workforce and announced Tuesday that it would close its San Mateo office and cut 229 jobs there.
“If I had to bet, I’d say this could be one of the worst downturns we’ve seen in recent history,” Meta CEO Mark Zuckerberg told employees during a weekly Q&A session. responses recorded and heard by Reuters. Meta plans to cut engineering hiring plans by at least 30%, according to Reuters.
Investors will be watching Meta earnings closely, which will be released on July 27, to see if there has been any significant recovery from the company’s disastrous reports of late 2021 and early 2022. The company lost a record $230 billion. dollars in market value. amid a rebranding and business model reshuffles.
Meta announced in 2021 a shift in its social media activity towards artificial and virtual reality. Zuckerberg has also previously warned that Apple’s new privacy rules will negatively impact the company’s ad revenue.
“Meta is currently in a period of transition as a company,” said Mike Proulx, a researcher at market consultancy Forrester. He added that the company is also struggling to retain users, especially young people, as they migrate in large numbers to competitors like TikTok.
“Meta has a Gen Z problem, so the company needs to drive usage of new products like Reels and find a way to monetize it,” he said. “It’s a long-term game.”
Big companies aren’t the only members of the tech sector to be affected, with layoff tracking site Layoffs.fyi showing 36,861 new employees laid off in the second quarter of 2022, compared to just 2,695 employees laid off in the same quarter of 2021.
However, analysts have warned that the current crisis represents a slowdown from runaway growth in previous years, and not necessarily a crash.
In the unfolding of the global Covid-19 pandemic, tech companies like Peloton, Zoom and Netflix have experienced meteoric growth as more and more people have relied on technology to work and live online.
That growth is coming to an abrupt end: Netflix, which added more than 36 million subscribers in the first year of the pandemic, has lost more than half of its value since announcing disappointing results on 19 April and said in May that it would cut about 150 jobs.
“The streaming space is finding that there are more choices for consumers than ever before, and consumers will follow where the best content is,” Proulx said. “As more and more subscription services emerge, something has to give.”
Not everyone in the tech industry has been equally affected by the downturn, Anwar said. While Meta, Netflix and others are struggling, companies like Microsoft and Apple are more stable.
“That said, no tech company is immune to the pressures coming from rising interest rates, slowing economic growth and soaring inflation,” he said. “Their earnings will show some impact from these economic headwinds.”