Illustrating the point
One word: Metaverse. It’s been a very tough week to be any of the tech giants, with Amazon, Google, Microsoft, Apple, and Meta all reporting missed earnings or declining revenue guidance. Every brutal line of bad news basically boils down to one thing: customers are or will be spending less, and these companies appear increasingly bloated with expenses (and, say some, overpaid employees). Unlimited budgets for employees, or a CEO that basically owns all voting rights for a company (Meta/Facebook’s Mark Zuckerberg) seemed like a good idea back when the US was printing free money, but no longer.
The market feedback was brutal, with hundreds of billions of dollars erased, especially for Amazon and Meta. Here are some titles from market watchers on SeekingAlpha (a site on which we also published a couple of opinions on Nike and Netflix):
- Major Meltdown Meta? 7-Year Low
- Market Revokes Zuckerberg Tech-Genius Title: Fixing Meta Not Rocket Science
- Amazon stock dives over 20% on downbeat sales forecast
So what’s this “new economy” meltdown got to do with the very “old economy” wisdom from Sam Walton? Specifically:
- When customers stop or slow down buying, tech titans are in virtually unknown territory. They’ve pretty much existed for a couple of decades of the most remarkable growth in the economy and stock market in our lifetimes. They could be forgiven for believing they “created” all of it, and forgetting the roles of prosaic things like cheap money and the dollar and mostly stable prices.
- Meta and its “chairman” (to use Sam Walton’s title) Mr. Zuckerberg seem uniquely immune to anyone else’s advice, or the idea of hedging risks. In rapid succession, we learned Meta’s gross margins collapsed, lots of billions of dollars are and will continue to be spent on a Metaverse that doesn’t really have any meaningful paying customers, and Meta’s latest VR goggles will sport a $1,499 price tag when so many would love that kind of money to catch up with grocery bills (in the real world, not the metaverse).
- When stock prices drop dramatically, tech employees total compensation equation melts down. The companies face a horrible decision: fire lots of employees, or issue new options / pay more cash, which can tank stock prices further, putting even the “chairman” at risk to be fired (if not by the Board he basically approved / hand-picked, then by the self-destruction of the company itself).
Tech companies as well as consumer facing giants like Amazon are in for a new reality. It’s hard to see how they pull a new rabbit from the hat without free money, and without some folks getting fired, ultimately by the customer.
Fine-tuning the point
Quotes are memorable because they may sound like universal truths. In practice, they rarely are. So for every quote we feature at EBITDA Catalyst, we will provide some caveats, if we believe without them the quote could be misunderstood or misapplied. The following caveats apply to Sam Walton’s quote, in our view:
- Sam Walton lived in a world in which building companies the size of Walmart took working lifetimes, not mere years. One hopes today’s tech titans, most of all Meta’s already controversial Mr. Zuckerberg, will listen to the customer and avoid proving, especially to their shareholders, the proverbial “easy come, easy go.”
- Walton’s quote never argued that the “chairman” can’t be brilliant, filthy rich, and fired all the same.
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