Tech Investors Shouldn’t Fall for the Plot Twist

Investors who have loved and lost in tech over the last year might easily fall prey to fantasy like a midsummer night’s dream. But especially in today’s market, where even fundamentals are taking a back seat to volatile macroeconomic swings, they must be particularly discerning.

Amid epic share-price declines, there is certainly a case to be made for a value play. Perhaps the most prominent example: Shares of Meta Platforms (formerly known as Facebook) have lost half of their value over the last six months alone—shedding some $550 billion. Most of that loss came after Facebook rebranded itself as a so-called metaverse company, changing its name to match. But there were other factors at play. Software changes imposed by Apple have impaired Meta’s ability to do what its social-media platforms have historically done best: target users with ads. Investors might still be mourning the loss of the social-media giant as we once knew it, but even a shift in focus and growing competition won’t drive billions of users away overnight.

IAC, too, at least has a record of success in transformation, albeit on a smaller scale. Barry Diller’s $9 billion holding company is unique in that it typically hangs on to companies only temporarily, spinning them off once they’ve reached a critical mass. While the company has had many big winners since its inception— Expedia Group and Match Group come to mind—the jury is out on whether it has any assets in its stable that can one day equal the success stories of its predecessors.

There also are examples of companies whose leaders have enjoyed great records even while their current company hasn’t. Peloton struck gold in 2020 and 2021 by being in exactly the right place at exactly the right time. Now growth is waning, and new Chief Executive Officer Barry McCarthy seems to think he might be able to slap a reasonably priced subscription on what was once aspirationally priced hardware. Such a strategy seems aimed at attracting more cost-conscious consumers, but it might lure lower-quality ones instead.

Other pandemic sensations seem to believe they can easily follow their customers back out into the world as it opens back up. With user numbers declining, Pinterest is trying to go from inspiration to monetization via commerce while Zoom is trying to move into office spaces with tools like Zoom Phone and Zoom Rooms. Food-delivery platforms like DoorDash and Uber are trying to morph into super-delivery apps, betting that even if restaurant delivery fades, the habit of home delivery in general will endure.

There are companies selling big change when little is evident. When Twitter co-founder Jack Dorsey stepped down as chief executive late last year, he said he had worked hard to ensure his company could break away from its founding and founders. Meanwhile, his successor, Parag Agrawal, told investors and analysts on a November earnings call he was the right man for the job because of his 10-plus-year tenure at the company. On that call, he also reiterated Twitter’s historic mission to “serve the public conversation” and said the company’s outlook strategy remained the same.

The flip side is a company trying to convince you that it isn’t changing while it reverses course. After announcing last year it would wind down iBuying—the automated home-flipping business that had come to represent more than half of its revenue—Zillow said in a February shareholder letter its “mission has been steady”; its vision “unchanged.”

Zillow, meanwhile, also has ambitions of becoming a super app—a housing one—aiming to connect all the fragmented pieces of moving together on one transaction platform. It is an enticing sales pitch—especially for anyone who has endured the laborious process of buying or selling a home. But in practice, it could be a longtime coming: Today, there are thousands of companies dedicated to real-estate technology, according to PitchBook, and yet only 1% of transactions are conducted online.

“Lord, what fools these mortals be!” Shakespeare also wrote. Whether the companies or the investors are the greater fools, depends on who exactly is buying the act.

Write to Laura Forman at [email protected]