Internet Golden Age Is Over in Warning Sign for Tech Investors

The era of explosive growth in global internet traffic that fueled decades of double-digit earnings, revenue, and stock growth is coming to an end, but not before catapulting companies like Google parent Alphabet Inc. (GOOGL), Apple Inc. (AAPL), Facebook Inc. (FB), eBay Inc. (EBAY) and Amazon.com Inc. (AMZN) into tech behemoths. In her most recent report, internet guru Mary Meeker outlines the evolution of the multi-trillion dollar internet economy from its early stages of rapid growth to its current stage of maturity, marked by much more mundane growth similar to old-line industries.

“When markets reach mainstream, new growth is harder to find,” Meeker writes in her report. “While e-commerce continues to gain share vs. physical retail, growth rates are slowing. While internet advertising growth is solid and innovation is healthy, there are areas where customer acquisition costs may be rising to unsustainable levels.”

What It Means for Investors

The mere fact that the total number of internet users worldwide has reached 3.8 billion—more than half the world’s population—means that growth will be necessarily harder to come by with fewer than half the world’s population left to reach. In 2016, the growth in total internet users picked up to about 12%, before falling to 7% in 2017, and then to 6% last year.

That slower growth has begun to make itself felt in slower global internet revenue growth for the market-capitalization leading companies like Microsoft Corp. (MSFT), Amazon, and Apple. Revenue for the global internet leaders reached just under 30% year-over-year in the first quarter of 2018, but steadily dropped to 13% year-over-year in the fourth quarter of 2018 and reached as low as 11% year-over-year in the first quarter of 2019.

E-commerce growth has also been slowing, falling from about 17% year-over-year in the fourth quarter of 2017 to 12.1% year-over-year in the fourth quarter in 2018. It ticked slightly upward to 12.4% year-over-year in the first quarter of this year. Acquiring new customers online is becoming more difficult as well, with customer acquisition costs in highly competitive and highly capitalized sectors on a steady uptrend over the past several years.

Looking Ahead

While these trends should act as a warning sign to tech investors that the era of exceptional growth is coming to an end, it could be argued that the world that the internet has created is still very new and presents enormous possibilities for applying the variety of tools the internet has created. But the days of raking in huge profits simply for being online and attracting new users of the internet are over.