- [Narrator] These are just a few of the tech companies
whose share prices have fallen in 2022.
(ambient music)
And here's a chart of the percentage change
in the tech-heavy NASDAQ
compared to broader indexes.
While stocks are down in general,
the tech industry is having an especially hard time.
And in April and May,
a wave of layoffs and hiring freezes hit the sector.
- The story of what's happening with tech
is not just a story about this year
or even the last year itself,
it's really a story about what's been happening
over the past decade.
- [Narrator] While other sectors have faced declines,
here's why the tech industry is having a record downturn
after years of growth.
10 years ago, the tech industry was ready to grow.
The US was still recovering from the Great Recession,
and interest rates were hovering near zero.
- The Federal Reserve is using its monetary policy tools
to promote a more robust recovery.
- So. low interest rates, they're good for tech stocks,
lower yields make it really, really easy to,
they increase the appeal of the future earnings
that a lot of these tech stocks will have.
- [Narrator] In 2012 and 2013,
tech players like Facebook and Twitter went public,
(dramatic music)
and advancements like mobile and cloud technology
helped drive profits for many companies
and fueled growth in the sector.
Let's go back to that NASDAQ chart.
We can see how the tech industry
steadily grew over the decade as money poured in,
outpacing growth in other industries.
As revenue grew, companies also expanded their workforces.
For example,
Facebook added about 40,000 employees to the company
between 2012 and 2019.
By the end of that year,
tech was at the forefront of the stock market,
with a bull run being driven
by companies like Apple and Microsoft.
- 2010s were really the decade of disruption
for a lot of these tech stocks,
we really started to be on our phones longer,
we started going on social media,
and all these factors combined
really, really increased the allure of tech stock,
investors wanted a piece of it.
- [Narrator] Low interest rates
and increased smartphone use
were vital contributors to growth.
- Those two factors combined together
really made it easy to just sort of go into the tech trade,
and really led to the valuations
of a lot of these tech companies
to become really inflated, really lofty.
- [Narrator] Then, 2020 hit.
- The breaking news, "Stay at home!"
That is the order tonight from four state governors.
- [Narrator] Stocks across the board initially took a plunge
as "Stay at home" orders and lockdowns
rippled across the world.
With more people stuck at home,
the tech industry was set up to capitalize on demand.
- When the pandemic first started,
we had all these lockdowns,
we had travel restrictions, and people were stuck at home.
So what do you do when you're stuck at home?
You go online, and you binge watch shows on Netflix.
You wanna talk to your friends, you go to Zoom.
- [Narrator] At the same time,
Washington enacted a massive stimulus plan.
The government sent out
more than 150 million stimulus checks,
and the fed made plans
to lend billions of dollars across markets.
- We have held our policy rate near zero since mid-March
and have stated that we will keep it there
until we are confident
that the economy has weathered recent events
and is on track to achieve our maximum employment
and price stability goals.
- The Federal Reserve slashed interest rates,
and they were historically ultra low.
And that made it also very, very easy
for a lot of these tech companies to take on cash,
to borrow more money.
It lowered their borrowing costs.
So yeah, that altogether really helped tech stocks
get to the levels they were at in 2020 and 2021.
- [Narrator] As stimulus flooded the economy,
market cap prices for tech leaders
like Amazon, Apple, and Meta reached new records.
Some companies significantly grew their workforces
to meet rising demand,
announcing increased hiring during earnings calls
to shareholders.
- [David] We ended the quarter
with over 71,900 full-time employees,
up 23% compared to last year.
- [Jason] We finished the quarter
with nearly 3,800 employees, up 134% year over year.
- [Narrator] But growing valuations
flashed a warning sign to some analysts,
who speculated that companies might not be able to keep up
with the exploding growth.
Inflation was beginning to take center stage.
- We had Federal Reserve Chair, Jerome Powell,
come in and say that,
"Yeah, okay, we're now going to start thinking
"about raising rates to fight inflation,
"because it seems like it isn't temporary anymore."
- High inflation is a severe threat
to the achievement of maximum employment,
into achieving a long expansion that can give us that.
- And that's sent investors absolutely freaking out,
panicking about these tech companies.
- [Narrator] Share prices for small tech companies
and giants alike started to slip.
While inflation supply, chain issues, and the war in Ukraine
were impacting businesses around the world,
tech was being faced with other unique challenges.
Ad revenue, which social media companies like Snap,
Twitter, and Facebook rely on, has taken a hit
as inflation led companies to spend less on advertising.
And apple introduced a privacy feature last year
that restricts user tracking,
which means that sites have a harder time
targeting ads to users.
Companies now had to redesign their ad targeting
and tracking tools to comply with the new rules.
And by doing so, lost business.
Meta estimated that Apple's ad-tracking changes
would cost the company $10 billion this year.
Another issue that caused earnings to take a tumble
is changing consumer behaviors.
- So, previously, we were all at home,
ordering stuff online again,
and now, we're shifting back and going back in person,
we're going to restaurants.
We're going to stores.
- [Narrator] Companies are looking to cut costs,
having expanded when growth was booming.
In a shareholder meeting, Meta said that-
- [David] Given the resulting revenue headwinds,
we have adjusted our plans
for hiring and expense growth this year.
- [Narrator] Carvana CEO said in an email
that they would cut around 2,500 workers.
And Robinhood said in a shareholder meeting
on their increased hiring that-
- [Vlad] The time we thought that this was right
to keep up with the pace of the business,
but it also led to some inefficiency, some redundant roles.
- [Narrator] Stocks have dropped quickly
amid poor earnings results and the slowdown in growth.
Now, some investors are bailing on volatile tech stocks
as interest rates rise.
- So tech companies also include
some of the most speculative companies in the market,
and riskier ones as well.
So it makes it really, really hard for you
to justify owning something that's not gonna be profitable
for a long time in the future to come.
- [Narrator] It's unclear
where the market might go from here.
- Analyst and investors right now remain divided
about whether this slowdown is going to be temporary
or permanent.
- [Narrator] And not all tech companies
have been hit as hard.
IBM and Citrix
have both continued to outperform the declining market,
but with the Federal Reserve
expected to steeply raise interest rates,
analysts say tech stocks will continue to suffer.
(gentle music)