Even Google has suffered during the advertising downturn and froze recruitment in July .
This year’s great slowdown in the tech sector is continuing unabated, with analysts warning that US economic headwinds including rising inflation and recession fears mean worse news is on the way.
Under the shadow of a looming round of potential redundancies in Silicon Valley, the next fortnight’s earnings reports from Facebook-owner Meta, Twitter, Tesla and Google are expected to make for tricky reading for investors.
“The biggest question now is, how bad is it?” said Scott Kessler, a technology industry analyst at the global research firm Third Bridge.
“There are a lot of variables to consider, and some areas seem to be holding up while others are getting hit pretty hard.”
After pandemic lockdowns turbocharged the sector, providing a captive audience for online services that drove consecutive quarters of growth, fortunes have reversed this year.
Analysts are bracing to see if the last disappointing round of results represents the end of Silicon Valley’s golden era or simply a slowdown after the last few years of rapid expansion.
Earnings across industries are forecast to slow, with researchers at Factset expecting a growth rate of 2.4% in the wider S&P Index – the lowest figure since the third quarter of 2020.
As inflation has risen around the world throughout 2022, advertising spending is down across online platforms, although some companies are being hit harder than others.
In its last earnings report Meta, which also owns Instagram and WhatsApp, forecast that revenue for the June to September period would be in the range of $26-28.5bn (£22.8-25bn), much lower than the Wall Street estimate of $30.5bn.
Meta has been hit by Apple policies enacted last year that allow users to opt out of tracking on iPhones, which the Facebook owner claimed would cost it $10bn in advertising revenue in 2022.
impact. In its July earnings report it projected its first fall in revenue since going public in 2021, and last month announced a recruitment freeze and potential restructuring, leaving many expecting redundancies.
Its chief executive, Mark Zuckerberg, said the company was responding by investing heavily in the Metaverse, a virtual reality platform that Meta will control entirely.
However, it has struggled to monetise the new sector.
It is also struggling with tough competition in the form of TikTok, which is attracting large numbers of young users.
Since 2015, the proportion of users between the ages of 13 and 17 using Facebook dropped from 72% in 2015 to 34% in 2022.
The proportion of teenagers who use Twitter’s platforms fell from 33% in 2015 to 23% in 2022.
Twitter’s latest earnings report is highly anticipated, amid the ongoing drama over whether Elon Musk will purchase the company.
The billionaire made another U-turn this month on his proposed takeover, deciding to go through with the acquisition just days before a trial over whether he could be forced to carry out the deal was to take place.
The twists and turns have not been good for the company, said Jasmine Enberg at Insider Intelligence.
“Advertisers like stability.
Many of them may be hesitant to spend on Twitter due to all the uncertainty and turmoil surrounding the Musk ordeal.”
In the months since Musk offered to purchase Twitter at $54.20 per share, the company’s value sank as low as $46 per share, before more recently rising back to $52 after Musk’s apparent change of heart.
Twitter was already struggling to maintain advertisers before the Musk chaos ensued, Enberg said. “Musk or no Musk, Twitter’s advertising business is in trouble.”
Not all of the tech sector fell dramatically during the last round of reports: Amazon posted stronger-than-expected earnings and a positive forecast for quarter three, expecting revenue between $125bn and $130bn, which would represent growth of 13% to 17%.
Google has weathered the slowdown better than expected, but has not been impervious to the downturn in advertising.
It announced a recruitment freeze in July, interpreted as a worrying sign for the tech industry as a whole.
Other firms have already started cutting jobs, with Snapchat announcing in August it would make 20% of its employees redundant.
Netflix throughout 2022 has cut hundreds of roles, as has Tesla.
“Between structural changes to technology and cyclical headwinds from a global economic perspective, I don’t think there’s a tremendous amount of optimism around what these companies are going to communicate in the upcoming reports,” Kessler said.
‘Advertisers may be hesitant to spend on Twitter due to all the uncertainty and turmoil surrounding the Musk ordeal’ .
Jasmine Enberg Social media analyst .