Tech’s Reckoning With Reality Is Still Half-Baked

The tech bubble has popped up or is merely letting off steam on the way to becoming even stronger, depending on who you ask. But innovation autocrats are looking more Pollyannaish.

Many companies in this field have made investment signals a reality. In a shareholder letter in May, Internet owner IAC / InterActiveCorp.’S

IAC -3.66%

The chief executive officer, Joey Levin, wrote that wars, inflation, and global revaluation risks have prompted a re-establishment of a proper pricing framework that he expects will last for some time.

However, fund manager Cathie Wood, in part of her webinar, “In The Know,” argued that the problems that are happening in the world and markets give rise to public innovation. technology more opportunities.

Recently, almost everyone in the tech industry suffered a shock when investors abruptly switched from a growth all-inclusive valuation to profit and cash flow generation. For example, shares of IAC are down 53% in the past 12 months, while Ms. Wood’s exchange-traded fund ARK Innovation is down 64%, according to FactSet.


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The biggest stories in tech have recently been covered. Last month, Netflix said it would introduce advertising – something Co-CEO Reed Hastings has long shied away from and has even seen as a form of exploitation. The once-ambitious Peloton Interactive toppled its founder, lowered the price of hardware, and even bundled it into a new subscription tier in hopes of a more accessible future. This week, Snapchat’s parent company, Snap,

warned that online ad growth is slowing more than the market predicted, sending social media stocks lower.

And, after going particularly big with the promise of automatic home flipping, aka “iBuying,” online real estate firm Zillow Group has gone out of business, with CEO Rich Barton calling it is “too risky, too volatile” for its earnings, with “too little opportunity to recover equity.”

So much for innovation. Shares of these four companies are down about 75% on average over the past 12 months. So the market has yet to reward their move to realism. But companies that are still dreaming of boundless growth may well be about to face even greater setbacks.

In an email to employees earlier this month, Uber Technologies chief executive Dara Khosrowshahi acknowledged the market’s current shift away from growth, but he also talked about wanting to grow even faster. in areas including food delivery. Regarding the company’s freight business, he complained that less than 10% of investors have asked about it recently. Khosrowshahi writes: “The freight needs to be bigger for investors to realize its value and love it as much as I do.

Asset bubbles are easy enough to identify, but not so simple to define. WSJ’s Gunjan Banerji explains what bubbles exactly are, how they form, and what happens when they burst. Illustration: Jacob Reynolds for The Wall Street Journal

Opendoor, a pure iBuyer, hopes to become a “national company, across all markets”. According to its final earnings report, Opendoor is only available in 48 markets, leaving another 88% of countries deemed ripe for acquisition. Opendoor managed to make money in the first quarter – but that was in a particularly strong housing market in which revenue grew 590%, something that is unlikely to last.

Incredibly, Ms. Wood’s ARK Innovation ETF has received about $1.4 billion in net worth this year alone, according to FactSet.

No matter it took Nasdaq 15 years to get back to the top of from early 2000. Ms. Wood said her investment period is 5 years. Her research confirms that today’s market conditions aren’t like tech and telecommunications bubbles in part because her companies are still forecast to grow sales, while the “seeds” fail. failure in the early 2000s caused sales to drop. Of course, when you compare the current to what could be the most exhilarating market period ever, things can look benign.

Ms. Wood wrote of the market today: “The strongest bull markets climb walls of anxiety… This time, the wall of anxiety has extended to huge highs. Meanwhile, her fund predicts profits will grow nearly sevenfold for its position in electric vehicle maker Tesla over the next four years. It claims that augmented reality could grow 1,000 times the market cap by 2030. And it recently said the bitcoin price will grow to $1 million within the next four to eight years.

A lot can happen in the meantime. Elon Musk’s $54.20-per-share offer for Twitter came as his own example of irrational extravagance, just over a month after he made the offer, with shares of Twitter is currently trading 34% below his bid. It seems Mr. Musk has realized that he has overestimated a company with great potential, but today is full of challenges.

Tech investors who remain optimistic need to take a good look at that black mirror.

Write letter for Laura Forman at

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