Here’s an fascinating stock chart comparison that caught my eye this week.
For the first time, the market cap of Snapchat owner Snap is now less than supermarket M&S, in a sharp reversal of the tech firm’s fortunes.
If you’d spent £1,000 on shares in the social media platform five years ago, you’d be left with about £85 today after the stock fell by more than 90 per cent.
Alternatively, if you’d put that cash into shares of the 140-year old British retailer, today you’d have nearly £3,000.
Buzzy tech stocks, even if they float on a market cap of near $100bn, as Snap did, are not guaranteed success. In Snap’s case, it has wrestled with the twin rivals of Meta’s Instagram and Bytedance’s Tiktok, which have adopted a similar vertical video format to Snapchat and poached millions of its users in the process.
M&S, by contrast, has built up solid fundamentals in a fiercely competitive supermarket industry, with the stock shrugging off a painful cyberattack to recover to its highest point in around a decade. The shares are already up by around a fifth since the start of the year.
Weighing up M&S with Snap is a very apples-and-pears comparison, granted. But I could have picked a range of alternatives. Another tech firm now worth less than M&S is Klarna, which has already seen a more than halving of its share price since its September float.
And as we’ve seen this week, many software-based businesses are under pressure from the threat of AI, with the likes of RELX, Money Supermarket and Sage all tumbling since the start of the year.
The Shifting Sands of Market Capitalisation
The dramatic reversal in fortunes highlights a key trend: market capitalisation isn’t always a reliable indicator of future success. While tech companies often command high valuations based on growth potential, they are also susceptible to rapid shifts in consumer preferences and competitive pressures. Established businesses with strong fundamentals, like M&S, can offer a more stable, albeit potentially less explosive, investment.
The Rise of ‘Real World’ Resilience
The current market environment seems to be rewarding companies that deliver consistent performance and tangible value. Consumers still require to eat, and M&S provides that. The appeal of a solid business model, even in a disrupted world, shouldn’t be underestimated. This isn’t to say tech is doomed, but investors are becoming more discerning.
Age Verification and Social Media: A New Landscape
The recent Supreme Court decision allowing Mississippi to require age verification on social media platforms like Facebook and X will likely reshape the social media landscape. This could impact user growth and engagement for platforms reliant on younger demographics, potentially influencing their valuations.
What Does This Imply for Investors?
Investors should consider diversifying their portfolios and not solely relying on high-growth tech stocks. A balanced approach that includes established businesses with proven track records may offer greater stability in an uncertain economic climate. The age verification rules could also create opportunities for alternative social platforms that cater to specific age groups.
FAQ
- What is market capitalisation? It’s the total value of a company’s outstanding shares.
- Why are M&S shares performing well? The company has demonstrated resilience and strong fundamentals in a competitive market.
- What is the impact of the Supreme Court ruling on social media? It could lead to reduced user numbers and changes in platform strategies.
- Is tech still a good investment? Yes, but investors should be more selective and consider diversification.
