The brutal return to earthly reality of the Tech giants

The brutal return to earthly reality of the Tech giants

The last week of October will be remembered as the week when American Tech once again aligned itself with the Laws of Gravity.

The press makes headlines about repeated layoff plans, but this is just the beginning: they will follow each other over the next two years with a multiplier effect of 3 to 5. The employees who are currently “out of a job” at the moment are among the brightest in the world and should easily find work… on less favorable terms.

Common points

These companies, having matured in their market, thought they were immune to economic cycles. Their stratospheric stock market valuations are often based on growth metrics and not profitability metrics: subscriber growth vs. the amount of EBITDA generated. In this context, the negative numbers are seen as a shock for an industry accustomed to double-digit growth: YouTube, for example, saw its advertising revenues fall for the first time in its history.

So, we have been touched by 11,000 layoffs at Meta, but the latter, like other technology giants, were unjustifiably received during the pandemic when life and business became highly dematerialized. Thus, Meta recruited more than 27,000 people in 2020 and 2021, and another 15,344 people in the first nine months of this year. The balance for the year remains positive.

Worse, these companies have forgotten the basics of accounting management with an uncontrollable spiral of costs: Meta’s bet on its vision of Metavers appears to be inconsiderate by “burning” an average of 2 billion dollars per month. Who in the world is spending that much on its CapEx? Who invests 8.5 billion dollars in a movie studio, owner of the James Bond franchise, 3.5 billion dollars in One Medical, which is in primary health care or 10 billion dollars in satellites through its subsidiary Kuiper Satellites? What short-term return on investment or what synergies with their current core business, often very profitable?

Points of difference

We often like to present these companies as uniforms with this acronym with a “very bad” taste in France by GAFAM (2) which translates the same sense of impunity through a deceptive attitude and an empty resentment of guts against the brazen success of these societies turned into empires in a few decades. However, we forget that the trajectory of each entity is unique with unique economic models.

The Meta faces this famous double “pivot” consisting of:

  • reinvent itself in its advertising model in the face of Tik Tok’s disruption of the landscape of companies capturing our attention and Apple’s launch of App Tracking Transparency, a new permission management framework, that transforms the capacity to its target (3 ),
  • and to create in a megalomaniacal way the new fully immersive 3D parallel world in 10 years. The first is mandatory and the second is optional!

Amazon, which is less dependent on the economic model of advertising even though it has been growing a lot lately, may have to reinvent its consumption model of “everything for cheap, delivered to our door yesterday” that we all adopt when climate change rages on.

And what about Twitter? The company is already fragile due to the lack of a critical mass that hindered its growth in the heart of its business because its advertising revenues do not exceed Apple’s revenues with 4 billion dollars. One must earn from it, one is only studying there before gaining momentum in the subject. No one could have imagined the sudden explosion of the Elon Musk tornado, which does what it wants and turns this society into the “Lebanon of business”.

A salutary return to reality

This return to “ground truths” can be beneficial for these companies themselves and for the environment in which they operate. This will probably make its CEOs feel a little less “powerful” but I’m not targeting anyone in particular, the authorities better regulate the markets they are in without infringing on their activity or actions punishment or even innovation to be done. a return despite poaching in the territory of its neighbor like Google with the Cloud (whose activity lost 2 billion dollars in the last quarter of operation) .

And then to err is human even if we ask very intelligent people to limit its scope by a higher capacity for judgment. Yes, it is difficult to anticipate all the combined effects of the pandemic, the conflict in Ukraine or the reckless fiscal policies of the last 15 years. These boxes are not the only ones that have fallen into the lark mirror: Nike is counting on 10% growth until 2025 to reach a turnover of 50 billion dollars. 5% will be made in an unusual discount policy to optimize inventory management.

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(1) Meta’s fall in value by more than 70% of its stock price is brutal, but not unusual. Google is down more than 40% this year, Amazon is down more than 45%, and Snap is down more than 80%.

(2) GAFAM for the acronym of Google, Apple, Facebook, Amazon and Microsoft.

(3) Mark Zuckerberg has indicated in various conferences with financial analysts that ATT will have a negative impact of up to 10 billion dollars on its advertising revenues, which represents 98% of its total revenue.