2018 started off well for the markets. Consumer confidence and business optimism reached record highs, unemployment fell to record lows, real wages started to climb, lower taxes boosted investment, and GDP growth crossed the 4% threshold. Starting in late March, stocks saw steady gains. But that all turned pretty much upside down in October as the FAANG group of large internet stocks pressured indices, trade wars escalated with China, and ‘proactive’ measures by the executive branch (yes you know who that is) jolted confidence. The S&P 500 is down 15% since early October.
The tech sector, meanwhile, is burdened by growing worries about the regulatory outlook and concerns about peaking growth rates. There’s a lot of blame to be spread around, as we’ve outlined in Techonomy previously. The end of the smartphone boom, misaligned incentives by big tech companies getting in the way of them pursuing technology’s essential purpose, and insufficient prioritization of the protection of privacy– these trends will continue to shape our future.
Looking into next year, as this all plays out, we will see more pain but also new opportunities. So here are some trends to be on the lookout for in 2019, as well as some shorter-term, more actionable, predictions.
5 Predictions for 2019
- Apple and Amazon return to $1 trillion in market value and don’t look back. Apple and Amazon lost approximately $300 billion in market value since hitting the $1 trillion mark earlier this year. However, both are more than well positioned not only to re-cross that threshold, but not to look back. For Apple, what should become apparent soon is that the company doesn’t need to grow iPhone units for the stock to work. (An apparent flattening in unit sales spooked the market.) Meanwhile, Amazon’s uncanny ability to drive efficiencies across many aspects of our daily lives – along with its contribution to society’s aggregate purchasing power – should help see its value continue to accrue. In fact, that is the reason why Bezos deserves to be the world’s richest person. Moreover, neither company is at as much regulatory risk as other large cap tech companies, especially Facebook and Google. For 2019 I would rank order the investment potential of FAANG companies as follows: Amazon, Apple, Netflix, Google, Facebook.
- Privacy as a feature will serve as a key differentiator for products. Thanks in large part to missteps by Facebook, consumers are becoming increasingly aware of how the personal information they have volunteered or that companies observe about them can be exploited and abused. There was always an implicit agreement between the supplier (consumer) and guardian (company) of personal information that it would be protected and consumers could control their privacy. But a commitment to privacy is more important than ever and is bound to become an ever more key differentiator between companies. Just as companies tout standard features like speed, camera pixel quality, and ease of use, privacy is likely to rank highly within the product feature sets companies brag about. Those that prove that such commitments are more than just marketing tactics should benefit, while those that don’t really mean it will underperform.
- eSports goes mainstream and major content players strike lucrative streaming deals. Content creation costs are climbing at unsustainable rates. Netflix is better poised than most since many of its target markets are still under-saturated, but TV networks and the broader media landscape are a different story. The key in evaluating content investments is to see a predictable uphill slope in subscribers, but as incremental user opportunities diminish, crowd-sourced content will have a much larger role. Specifically, look for eSports to gain mainstream traction, with potentially lucrative streaming deals with both Netflix and Amazon. As a Formula 1 fan, I was surprised to see over 4 million people tune into the final last month, about 75% of them via live streaming. Expect eSports to gain momentum and the largest content players to capitalize on it.
- Uber follows in Amazon’s footsteps in advertising. It’s no secret Uber Eats opened up important advertising opportunities for Uber. When one thinks about the 15-20 minute captive audience the company has on a typical ride, as well as the unbelievable data associated with that person (time, destination, historical travel routes, etc.), it’s not hard to jump to the next level. Advertising is already prevalent in NYC taxi cabs, so why not in Uber cars? With an IPO looming, advertising and the leveraging of the data could yield revenue and bolster investor confidence, which already appears high.
- China caves on trade. Much of the volatility in the market right now is a function of risks associated with a growing US-China trade war. China understands quite well, however, that it can’t tolerate any permanent loss of its supply chain relationships. International companies that have operated in China could make permanent transitions to other competing overseas markets. The country already has trade and investment challenges because of risks like IP theft, forced partnerships with foreign companies, and increasing local labor costs. The country doesn’t need further impediments to the growth the Communist Party leadership knows is needed. They will come to their senses, and trade relations are likely to return to more or less normal.
James Cakmak was until recently a Wall Street security analyst for over 10 years covering the Internet sector. He is also co-founder of Snailz, a nail salon booking app now operating in New York. Follow him on Twitter: @JamesCakmak
Ryan Guttridge, Adjunct Professor at Smith School of Business, University of Maryland, contributed to this article.