Technology stocks have begun 2023 with a bang. NASDAQ is up almost 20% and stocks such as Meta (erstwhile Facebook) and Tesla (not necessarily a tech stock) almost doubling from their lows. Whilst despite the bounce, stocks are still significantly below their all time highs, the rally is hard to digest if you are one of the tens of thousands to be laid off by the industry as recently as weeks ago. More so when employment numbers in the US rose by half a million in January and unemployment levels in the US reaching a 50yr low. This piece by Ben Thompson tries to explain why tech is laying off whilst the rest of the economy seems to be on a recovery mode. Ben uses the analogy of the Four Horsemen to highlight four issues plaguing the tech industry.
First, the COVID hangover: “…tech didn’t just survive COVID: it thrived. Consumers with no way to spend discretionary income and flush with stimulus checks bought new devices; people stuck at home subscribed to streaming services and ordered e-commerce; businesses thrust into remote work subscribed to SaaS services that promised to make the experience bearable; and all of this ran on the cloud.
… Go back to work-from-home, and the flexibility of cloud computing. When corporations the world over were forced literally overnight to transition to an entirely new way of working they needed to scale their server capabilities immediately: that was only realistically possible using cloud computing. This in turn likely accelerated investments that companies were planning on making in cloud computing at some point in the future. Now, some aspect of this investment was certainly inefficient, which aligns with both Amazon and Microsoft attributing their cloud slowdowns to companies optimizing their spend; it’s fair to wonder, though, how much of the slowdown in growth is a function of pulling forward demand.”
Second, the hardware cycle: “…This applies to all consumer electronics and, in the case of, applies to a whole host of durable consumer goods.
The most obvious victim of the hardware cycle was Apple, whose revenue was down 5%, despite the company benefiting from a 14-week quarter. The biggest impact on the company’s revenue was the COVID-related slowdowns in iPhone production in China: a phone not made is a phone not sold, a zero-sum game in its own right. Mac and Wearable, Home, and Accessories revenue, though, was down even more, which makes sense give how much both categories, particularly the former, exploded during COVID…. Microsoft reported that Windows OEM sales were down 39%, which particularly impacted Microsoft’s long-time strategic partner Intel. Even mighty TSMC is forecasting a decline in revenue, and is struggling to fill advanced-but-not-cutting-edge nodes like 7nm.”
Third, interest rate hikes: “The SaaS model, as I have documented, entails operating unprofitably up-front to acquire customers, with the assumption being that those customers will pay out subscription fees like an annuity; moreover, the assumption was that that annuity would actually increase over time as companies used their initial product as a beachhead to both increase seats and average revenue per user.
This is fine as far as it goes, but the challenge from a valuation perspective is that it is difficult to model those annuities far into the future. First off, predicting the future is hard! Second, one of the biggest lessons to Microsoft’s dismantling of Slack is that it is problematic to extrapolate “big enough to get the attention of Microsoft” growth rates from “popular with startups and media” growth rates. Third, any valuation of long-term revenue streams is subject to a discount rate — money now is worth more than money in the future — and rising interest rates increased the discount rate, which is to say it devalued long-term revenue. This in term reduced the current valuation of SaaS companies across the board, no matter how strong their moat or large their addressable market.”
The fourth, Apple’s App Tracking Transparency (ATT – Apple’s privacy policy), a factor less appreciated by some of us non-tech folks:
“Every company that relies on performance marketing, from Snap to YouTube to Meta to Shopify has seen its revenue growth crash from the moment ATT came into force in late 2021..”
The article quotes Eric Seufert, a media strategist to explain: “ATT fundamentally disrupts what I call the “hub-and-spoke” model of digital advertising, which allows for behavioral profiles of individual users to be developed through a feedback loop of conversion events (eg. eCommerce purchases) between ad platforms and advertisers. In this feedback loop, ad platforms receive conversions data from their advertising clients, they use that data to enrich the behavioral profiles of the users on their platform, and they target ads to those users (and similar users) through those profiles. I’ve written extensively about how ATT disrupts the digital advertising ecosystem, but the disturbance is most pronounced for social media platforms as I’ll describe later in the piece. The shocks of ATT became discernible in Q3 2021 (the quarter after ATT was rolled out to a majority of iOS devices) but were substantially troublesome for Meta in particular in Q4 2021. The disruptive forces of ATT have compounded over time.
My general belief is that the impact of ATT has been underestimated; ascribing the advertising revenue headwinds being felt most profoundly by social media platforms and other consumer tech categories with substantial exposure to ATT to macroeconomic factors is misguided.”

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