After two years of unprecedented growth in social media and streaming, a post-pandemic reality is beginning to set in.
Why it matters: Huge revenue gains during COVID inspired media and tech titans to take big bets. As growth stalls, Wall Street wants them to pivot from promise to profit.
Driving the news: Meta CEO Mark Zuckerberg on Wednesday strayed from his typical earnings call remarks about innovation, telling investors that given current growth levels, “we are now planning to slow the pace of some of our investments.”
- Meta’s revenue percentage growth sank to single digits last quarter, marking its slowest growth period since going public as Facebook nearly a decade ago. The company warned investors that next quarter, growth may continue to dwindle.
- Google parent Alphabet saw its shares drop 3% earlier this week after it reported weaker-than-expected advertising revenue growth at YouTube and slowed growth for Google search compared to last year.
- Spotify’s stock sank to an all-time low yesterday after missing Wall Street estimates on paid user growth. Despite surpassing projections on overall monthly user growth, investors were wary that the audio streamer could be hitting the same ceiling that’s impacted other paid streamers like Netflix.
The big picture: Slowed growth coming out of the pandemic, in conjunction with wider macroeconomic factors like inflation and the war in Ukraine, is forcing the biggest companies in media, tech and entertainment to temper expectations.
- Netflix executives are vowing to impose more “financial discipline” in response to a massive selloff last week, according to The Wall Street Journal. The company lost more than $ 200 billion in market value after reporting its first quarterly subscriber loss in a decade.
- Warner Bros. Discovery CEO David Zaslav told investors earlier this week, “We will not overspend to drive global subscriber growth.” He noted that “sustainable and sustainable free cash flow generation” was a top priority for the company.
Be smart: The pandemic pivot to digital prompted enormous investments in new technologies like streaming, e-commerce and the metaverse.
- But while media consumption levels are still up compared to the pre-pandemic era, growth is expected to slow down significantly, making it harder for companies to justify long-term investments.
What to watch: As more companies begin to streamline costs, it may help consumers feel less overwhelmed by options. Netflix, for example, will reportedly focus on producing fewer, higher quality programs, following a year of record high volume in original scripted series.