In times of economic uncertainty, investors tend to flock to safety and pull back on riskier investments such as tech. As a result of the volatility caused by the economic slowdown, the technology sector is among one of the worst performing sectors this year.
The ETF tracking the tech sector, XLK, sank 18% so far this year compared to the S&P 500’s 13% decline. During the longest running bull market, investors rewarded the high-growth tech sector, and many of the biggest tech giants saw their stock prices take off.
However, those good fortunes have taken a pause. Many of the Big Tech companies have strong advertising businesses, but the macroeconomic slowdown has begun eating away at advertising and marketing budgets, which has in turn hit the biggest digital advertisers.
“What we’re hearing from advertisers, more specifically as it pertains to advertising budgets is what we said before, which is that they are taking this time, given all of those other macro pressures, to reevaluate their priorities to ensure that they’re making the right investments in the right places. And when we talk about digital advertising, it is the easiest thing to turn off,” Snap chief business officer Jeremi Gorman said on the company’s earnings call July 21.
Similar concerns percolated among the execs at rival Meta. “Many of the macro factors having an impact on our revenue are continuations of things we’ve seen in previous quarters,” Meta COO Sheryl Sandberg said July 27 on the company’s earnings call. “But there are also new challenges with rising inflation and uncertainty around a looming recession. We know that recessions put pressure on marketers to make sure their ad budgets are spent in the smartest way possible.”
Even Apple, which had a pretty good quarter overall, noted, “Digital advertising was clearly impacted by the macroeconomic environment,” CEO Tim Cook said July 28 on the earnings call.
Amid the challenging macro environment, tech companies have been finding ways to mitigate the financial damage. One of the main ways Big Tech execs have said they are adapting to uncertain times is by being mindful of headcount.
“Given the uncertain global economic outlook and the hiring progress achieved to date, as Sundar previously announced, we intend to slow the pace of hiring. We expect our actions on hiring to become more apparent in 2023,” Alphabet CFO Ruth Porat said July 26 on the company’s earnings call. “Although we expect the pace of headcount growth to moderate next year, we will continue hiring for critical roles, particularly focused on top engineering and technical talent.”
Snap CFO Derek Andersen said July 21, “We intend to substantially slow our rate of hiring to effectively pause growth in our headcount, which is a significant portion of our OpEx.”
In addition, Meta CFO David Wehner said, “We anticipate headcount growth will slow throughout the rest of the year due to the reduction in our hiring plans. We’ve reduced our hiring and overall expense growth plan this year to account for the more challenging operating environment while continuing to direct resources toward our company priorities.”
Despite the current circumstances, consensus among the tech execs was that focusing on developing superior technology that will continue to drive growth could be the winning strategy for the future.
“As we look forward, we’re clear-eyed about the uncertainty in the macro environment. Yet we remain ever focused on the same vision that has guided us from the beginning.” Apple’s Cook said. “We strive every day to be a place where imagination ignites innovation like nowhere else, where good people come together to achieve great things, where customers are the center of everything we do. And we’ll continue to execute on that vision as we always have, led by a focus on excellence and a desire to leave the world better than we found it.”