Private equity boss Orlando Bravo has a grim warning for the tech industry. “I think there’s still more pain to come,” said Bravo, founder of buyout firm Thoma Bravo.
For years, the technology sector has led the stock market, with companies like Apple and Microsoft becoming some of the most valuable companies in the world. But in 2022, tech stocks have struggled as central banks move to tame runaway inflation. The US Federal Reserve made the most aggressive interest rate hike since 1994 on Wednesday.
Higher rates make the future earnings of growth-oriented companies less attractive. Tech companies, especially those backed by venture capital, tend to prioritize growth over short-term profitability. “When those companies really start to answer the investor question, the path to profitability, they’re not going to like what they see,” Bravo said. Bravo has a net worth of $6.3 billion, according to Forbes.
“It takes a lot of cost cutting, it takes a lot of pain,” he added. “And it’s difficult to execute especially in a public setting.” After buzzing tech firms have seen their valuations decline in both public and private markets recently, with companies that benefited from the societal effects of the Covid-19 pandemic getting hit harder than others.
Shares of Netflix and Zoom are down about 63% and 70%, respectively. Peloton, the fitness equipment company, has lost more than 90% of its value. The effects of the sell-off in tech stocks are also being felt by private firms, with the buy-now, pay-later firm said to be cutting its valuation by a third in a new round of funding.
Thoma Bravo was at one point rumored to be interested in making a counteroffer to Elon Musk’s $44 billion bid to buy Twitter. Bravo did not address the speculation, but said the firm has a “duty to look at every major software deal.” CNBC