Facebook, Kodak Show Extremes of Tech Stock Volatility Expected
While an array of stocks have surged in value after announcing plans to integrate AI and blockchain technologies into their products and workflow, some major tech players have taken a hit for adopting new approaches that consumers and investors reject or find threatening.
So even though billions in venture capital are flowing to tech companies, it remains a volatile time for their public stocks.
For instance, Facebook, a darling of Wall Street analysts for its innovation and AI research and development, had a 4.5% market drop after announcing that it was altering its algorithm in response to users so the app will show more of friends’ posts in their feeds and less promotion of passive news sources, according to Bloomberg.com.
The market voted against the switch, fearful of eroding profits by losing advertising revenue. The move wiped out $3.3 billion of the $4.5 billion gained in stock value by CEO Mark Zuckerberg for 2018.
“As Zuckerberg looks to strike the right balance between the needs of shareholders, regulators and users, Wall Street is trying to figure out how these changes affect the interplay between the time users spend on the platform, the amount of ads they’ll see and how much Facebook will be able to charge for each one.”
On the other hand, Kodak had a 120% jump in its stock price in one day due to announcing plans to employ blockchain technology to create a KodakCoin for photographers, according to the Wall Street Journal.
The move will enable professionals to protect their copyrighted photos, track their income and become less vulnerable to illegal usage in the digital world. However, some analysts say the stock price surge could be temporary based on cryptocurrency mania. Will Yakowicz of Inc. magazine lists the KodakCoin as one of the most overrated new issues. He writes:
“David Gerard, author of Attack of the 50ft Blockchain, told the BBC that Kodak’s plan to help photographers protect their image copyrights with the blockchain sounds suspect. ‘Notice how they’re marketing it: they state a problem, then say the blockchain can solve it. But there’s no mechanism by which the blockchain could do that,’ says Gerard. ‘This doesn’t do anything that signing up for Shutterstock or Getty Images wouldn’t.’ “
An article in Fortune magazine, however, states that it’s too soon to tell whether the KodakCoin will be a good bet long term. Much depends on what the company does now and whether it develops a high quality product:
“But new online platforms—and cryptocurrencies, for that matter—always face a Catch-22: They can’t grow without users, and it’s hard to get lots of users without a critical mass of them in the first place. The ICO could act to motivate those who’ve already invested in the platform…But Kodak is likely betting that (1) any success with the cryptocurrency won’t be based on a mounting “Bitcoin bubble,” resulting in devaluation of the coin, and thus large, near-term losses for Kodak and the investors, and (2) players like Fuji won’t enter the market with a better platform or currency offerings.
Along with Kodak, other companies are betting on new tech announcements to boost their share prices, a strategy that seems to be working, at least in the short term. According to a story in Barron’s:
…the “Amazon effect” is keeping tech stocks artificially high by staving off inflation. Writer Alex Eule, who covered a Barron’s roundtable on tech stocks, said tech’s “deflationary powers” are making stocks vulnerable to consumer “rebellion.”…“Consumers, journalists and regulators began asking big questions about privacy, online hate speech, and the power of social media.”
In addition, according to Barron’s, some investors are asking tough questions about company directions, such as Jana Partners, which sent a letter to Apple asking the company to mitigate the impact of the iPhone on children by building “better and easier-to-use parental controls into its iOS platform:
“It’s the kind of feature that Apple could easily promote in its next iOS or iPhone keynote, and it might make a difference for parents waffling about whether to buy an iPhone for their preteen child. ‘We believe addressing this issue now by offering parents more tools and choices could enhance Apple’s business and increase demand for its products,’ Jana Partners co-wrote with Calstrs, the California teachers’ pension fund.”
Despite the volatility, Bloomberg Businessweek calls the overall growth in price of tech stock investments a “stock market meltup,” and predicts that the markets will remain high because of investor fears of missing out on the next big winning stock.