Watch out for economic slowdown
After two years of unprecedented social media and streaming growth, a post-pandemic reality is beginning to set in.
Why is this important: Huge revenue gains during COVID have inspired media and tech titans to take big bets. As growth stagnates, Wall Street wants them to move from promise to profit.
Driving the news: On Wednesday, Meta CEO Mark Zuckerberg departed from his usual remarks on innovation during the earnings call, telling investors that given current growth levels, “we now expect to slow the pace of some of our investments”.
- Meta revenue percentage growth fell into single digits last quarter, marking its slowest period of growth since going public as Facebook nearly a decade ago. The company warned investors that the next quarter, growth may continue to decline.
- Google Alphabet, the parent company, saw its shares tumble 3% earlier this week after reporting weaker-than-expected ad revenue growth on YouTube and slowing Google Search growth from a year ago.
- Spotify Shares fell to an all-time low yesterday after missing Wall Street estimates for paid user growth. Despite beating projections on overall monthly user growth, investors feared the audio streamer would hit the same ceiling that impacted other paid streamers like Netflix.
The big picture: Slower growth resulting from the pandemic, combined with broader macro factors like inflation and the war in Ukraine, is forcing the biggest media, technology and entertainment companies to moderate their expectations.
- netflix executives vow to impose more “financial discipline” in response to a sell-off last week, according to the Wall Street Journal. The company lost more than $200 billion in market value after announcing its first quarterly loss of subscribers in a decade.
- Discovery of Warner Bros. CEO David Zaslav told investors earlier this week, “We won’t be spending too much to drive global subscriber growth.” He noted that “generating sustainable and sustainable free cash flow” was a top priority for the company.
Be smart: The pandemic shift to digital has prompted huge investments in new technologies like streaming, e-commerce and the metaverse.
- But while media consumption levels are still up from the pre-pandemic era, growth is expected to slow significantly, making it harder for companies to justify long-term investments.
What to watch: As more companies begin to streamline costs, it can help consumers feel less overwhelmed with options. Netflix, for example, is said to be focusing on producing fewer and better programs, following a record year of original scripted series.