With the way things ended in 2021, not many predicted the absolute carnage of 2022. While the pain was felt across the board, one of the hardest-hit sectors of the year was technology, and some of the highest flyers suffered the most.
The 10 NYSE FANG+ Index components combined shed more than $5 TRILLION in market cap in 2022, and the tech-heavy Nasdaq broke its three-year winning streak and logged its worst year since 2008. To be fair, tech had a good run during the longest bull market in history, lasting 11 years.
But times have changed, and the favorable market and economic conditions are over. The persistent macro pressures will likely suppress the tech sector’s growth this year, too.
After a rapid post-pandemic recovery in 2021, inflation skyrocketed as supply failed to keep up with increased demand. That caused the Federal Reserve to begin its interest-rate hiking spree, making borrowing costs higher, which led to the end of the free-money era for high-growth companies that relied on bank money to fuel their growth.
By the time first quarter earnings season rolled around, we began hearing things like “slowing growth” and “cutting costs.” Then as summer approached, the word “recession” was being thrown around, which spooked investors as they began dumping investments in growth sectors like tech in favor of safe, defensive sectors such as utilities, health care and consumer staples.
Among the earliest indicators of an economic slowdown was the advertising recession of 2022. The sharp pullback in marketing and advertising spending impacted the digital advertising behemoths. Global advertising growth is expected to slow in 2023 to 5% year-over-year, down from 7% year-over-year growth in 2022, according to Magna’s “Global Ad Forecast.”
As a result, the biggest loser among the Big Tech giants in 2022 was social media company Snap, which saw its market cap plunge a whopping 81%. Snap’s stock started the year at $46.59 but was just under $9 per share as of market close Dec. 30. For comparison, during the pandemic in 2020, Snap’s market cap surged a jaw-dropping 222% as people turned to social media and tech to keep themselves preoccupied while sheltering at home.
Much like Snap, rival Meta also saw its value fall off a cliff. Meta’s market value more than halved during the year. After joining the trillion-dollar market cap club in 2021, Meta lost its place in the list of 20 most valuable U.S. companies.
The social media giant’s market cap sat at just $319 billion to close out 2022. CEO Mark Zuckerberg’s all-in approach to its expensive metaverse business has created major doubts. The lack of visibility into the metaverse strategy has both analysts and investors questioning the long-term investment thesis of the company.
Social media companies such as Snap and Meta rely heavily on advertising revenue, and the anticipated prolonged advertising decline in 2023 will continue to weigh on their top lines. Twitter wasn’t included in this year-end roundup because Elon Musk took the company private at the end of October. However, before that, the company was facing similar hardships to its peers.
Google and YouTube ad revenue also helped to drive parent company Alphabet’s topline growth. After reporting strong advertising revenue growth in Q4 2021, the company reported a significant ad growth slowdown in July during its Q2 2022 results. Ultimately, the bleak advertising picture put pressure on Alphabet’s stock.
Meanwhile, Apple’s 19% market cap decline makes it (ironically) one of the best performers of the Big Tech giants in 2022. The iPhone maker became the first company to ever hit $3 trillion in market cap when it briefly crossed the threshold on the first trading session of the year. Unfortunately, Apple ended the year hovering right above $2 trillion in market value.
Apple’s reliance on hardware production in Chinese factories has created supply chain woes that will spill into the foreseeable future. Even as the company works to diversify its production, the sheer scale of its operations makes that endeavor extremely difficult. On the bright side, Apple’s streaming business, Apple TV+, gained some much-needed respect in 2022 after winning a best picture Oscar for “Coda.”
Microsoft was another better performer, with its 29% market cap decline in 2022. The tech giant made some pretty big moves during the year, most notably its January announcement to buy gaming company Activision Blizzard in a $69 billion deal. The deal was subject to regulatory approval, and in early December, the Federal Trade Commission sought to block the mega-merger.
The Microsoft-Activision deal would be the largest tech deal since the AOL-Time Warner pair-up two decades ago. If the deal somehow gets regulatory approval, it would be a huge moment for Microsoft and would give it a stranglehold on the tech-gaming space.
Expectations are low for the first half of 2023, Big Tech included. While the Fed is expected to slow down the pace of rate hikes next year, many are still anticipating a recession in the first half. But it’s important to remember that every recession also has a recovery on the other side. Economists have been saying that they think the recession this time around will be mild. And when the recovery follows, growth stocks will be on the rebound.
All that being said, no one knows anything for sure. What we do know is these are some of the lowest tech valuations we’ve seen in a long time. Whether you take that as good or bad is up to your own outlook. So maybe it’s better to look at all the Big Tech breakdown as a buying opportunity for those looking for long-term investments at a cheaper price.