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Linked – Expectations Debt

The term Expectation Debt fits a lot of what I was talking about earlier this year. This is a paragraph about Amazon, but you could write the same thing about Microsoft, Google, Zoom, and many other tech companies.

Expectations were so high in 2021 that investors and employees had to achieve extraordinary things just to break even. When results were merely good, they felt terrible.

As I’ve said before, many tech companies, especially cloud-based tech companies, did amazingly well during the worst of the pandemic. Then, in 2022 as the risk of death from COVID started to wane somewhat, the growth just wasn’t there for these companies. Most of them still had successful and profitable years by any measure, but they weren’t growing at these exponential rates any longer. Investors, CEOs, and Boards, just weren’t feeling a lot of “winning” going on, and the stock price showed it as the layoffs started.

It really is as though the bar got set remarkably high for a couple of years and now you have to pay the price when it comes to having expectations that are actually impossible to live up to.

You can’t have 30-35% growth every year, because the market just isn’t there. Microsoft already has hundreds of millions of M365 and Teams users. There aren’t another quarter of a million users sitting out there still looking for a collaboration platform for them to get that kind of growth again. In my opinion, expecting it was dumb.

Stockholders, however, did expect it. How else do we explain the sudden drop in stock prices in 2022?

In 2023 we are seeing that stock price go up in anticipation of CoPilot being available. There’s a ton of hype around it, and it might be a real revenue generator for Microsoft. Even if it is a huge hit though, eventually the growth number will have to be lower than it is the first couple of years.

It’s just math. Eventually, that percentage goes down as the existing number of customers and the amount of revenue gets higher each year.

But, stockholders don’t seem to care. VC investors don’t seem to care. It’s hockey-stick growth or nothing for them, and it’s killing their own industry in the process.

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