Russia-Ukraine Conflict

Big Tech companies rallied in support of Ukraine following Russia's invasion of the country, resulting in disruptions to some popular services in the region.

Market Dynamics

The steep correction that technology valuations saw in the first weeks of 2022 may ultimately prove to be more boon than gloom for the long-term health of the market.

Following a boom in tech values during the pandemic, the new year brought a period of review. As individual and corporate wealth accumulated and supply chains tightened, inflation began soaring at historic rates. The U.S. Federal Reserve has signaled it will raise its benchmark interest rates in an attempt to realign markets. Investors are now rethinking the massive valuations they have put on growth companies, technology tickers in particular, as they assess the potential risks of an economy in flux.

The Nasdaq dropped almost 15% from Jan. 1 to Jan. 27. While it has since recovered some of that lost ground, the tech-heavy index is still off by 7.4% as of market close Feb. 9.

Market observers see several factors driving the realignment, including inflation, interest rates and a re-focus on fundamental financial metrics. However, analysts argue that this shift in investor sentiment and strategy is a natural thing, and it could represent a healthy, long-term cycle.

Pandemic Recovery

The 2021 box office year started out slow as the U.S. remained in the grip of the COVID-19 pandemic and a winter surge in cases was underway. Then the vaccine rollout began, and studios committed to theatrical release dates for films that had been delayed in 2020.

M&A

Technology deal volumes and values hit astronomical records in 2021, and the break-neck activity is only set to continue in 2022.

The first three weeks of January saw nearly $100 billion in deals, maintaining the unprecedented pace that drove 2021 above $1 trillion in sector M&A. The month also saw Microsoft Corp. agree to pay more than any buyer in 2021 with its $77.96 billion acquisition of Activision Blizzard Inc.

Corporate development executives and investment banking advisers forecast the coming year to be equal to or even bigger than the 2021 market.

A full 69% of acquirers and advisers expect 2022 to sustain or add to 2021's feverish pace, according to recent 451 Research survey data. The market exited 2021 with $1.24 trillion in announced tech deals.



The survey found that 41% of respondents believe deal volumes will remain flat year over year and 28% believe activity will accelerate. A minority, 31%, said they believe activity will decelerate. The pessimism is atypical for deal-makers, who in past surveys have weighed more heavily toward M&A growth forecasts, 451 noted in a report on the survey, but it is also atypical for those deal-makers to be reflecting on a 13-figure run.

For targets, 451 survey respondents were confident in M&A valuations for the coming year involving private companies looking for a liquidity event. Only 35% of respondents said they believe private-company valuations will decrease in 2022 from historic highs, with the remainder saying they believe those valuations will hold or increase.

Regulation

Republicans and Democrats agreed last year to spend tens of billions of dollars on building out internet service, but how and where to spend that money remains hotly debated.

At the Feb. 8 INCOMPAS 2022 policy conference, experts from Capitol Hill and independent U.S. agencies congregated to discuss how to best use the $65 billion allocated to broadband deployment in the bipartisan infrastructure act.

Streaming Services

Bowing to ongoing industry trends, some U.S. cable news networks are launching new online subscription video services to offset declining traditional multichannel TV audiences. Fox Corp.'s Fox Nation and the forthcoming CNN+ from Warner Media LLC — to be launched in early 2022 — are examples. However, survey data of current Fox Nation viewers suggests the audiences for online cable news subscription video-on-demand services, at least initially, bear little resemblance to traditional cable news audiences.

Over the past five years, Kagan Consumer Insights survey results have documented the drop of traditional multichannel TV households — from 79% in 2017 to 65% in 2021 — while the percentage of internet households subscribing to an online video service has grown from 65% to 83% over the same period. As a result, online versions of many cable TV networks have been launched in recent years, including such familiar brands as Discovery+, AMC+, Disney+ and ESPN+.

Fox Nation, the online subscription video service operated by Fox News, was launched in late 2018. Results from the Kagan third-quarter 2021 U.S. Consumer Insights survey show that approximately 5% of internet households are currently using Fox Nation. In addition to news, Fox Nation offers a wide variety of daily TV programming, documentaries and movies. While many details of the CNN+ service have yet to be announced, numerous high-profile names from the news industry and Hollywood have already signed on to host shows.

Emerging Tech

Mobile carriers spent tens of billions of dollars on 5G spectrum over the past two years, but those investments may take a while to pay off, analysts say.

Looking at four of the biggest U.S. wireless companies — AT&T Inc., Verizon Communications Inc., T-Mobile US Inc. and DISH Network Corp. — the companies collectively spent nearly $100 billion in two near back-to-back mid-band spectrum auctions. Mid-band spectrum is considered essential for 5G delivery, balancing speed and range. It provides broader coverage than high-band spectrum and faster speeds than low-band spectrum.

While some analysts note the spending was important for the companies' plans to provide high-speed mobile and home 5G internet offers, others believe the financial outlays will handicap the heaviest spenders long-term, especially as they wrangle with both expected and unexpected delays in access to the spectrum.

Verizon and AT&T, in particular, spent too much in an attempt to keep up with T-Mobile's strong 5G footprint, according to Jeff Moore, principal of Wave7 Research, a wireless research company that covers U.S. postpaid, prepaid, smartphone and fixed wireless competition.

Supply Constraints

Apple's total product revenue climbed 9% year over year in the fourth calendar quarter of 2021, but Kagan estimates that unit shipments for the Apple devices we track fell 2% to 158.5 million as an increase in average selling prices offset ongoing supply constraints.

Sector rating actions will be more balanced following a significant positive bias over the last six quarters, reflecting good trends.

Further Reading