For the past decade, stock markets have been powered by the engine of Big Tech’s ‘Golden Age’ of growth. In November 2009, Amazon’s share price was a little over $126. Today, after a drop since August, a share in Amazon is worth just over $1720 – a gain of around 1280%. Google-owner Alphabet is up almost 325% over the same period, Apple’s share price has grown almost 750% and Microsoft around 370%. Netflix is up over 3000% since November 2009 despite having lost over 33% of its value since its high point of June 2018. At that point its share price was up over 5000%

Source: Google Finance

While traditional companies have mainly taken the approach of cutting costs in order to grow their earnings, the giant tech companies have been investing heavily in organic growth. The result has been a major boon for growth-starved investors. However, signals that Big Tech’s “Golden Age” is running out of steam are beginning to mount up. Is it the end of runaway growth based on future earnings potential?

Many of the biggest tech companies have seen their values eroded since the summer. But more significantly, public markets are demonstrating they are no longer willing to support growth at any price. It has to be underlined by revenues and profit – or at least a clear roadmap towards profitability. Private equity and venture capital has shown ever greater enthusiasm for growth stories but stock market investors are now reigning that enthusiasm in, as evidenced by the falling share prices of ride hailing apps Uber and Lyft since they made their public debuts earlier this year.

Uber has burned through almost $11 billion in just 3 and a half years but now seems to be getting the investor message that growth alone is not enough. It is taking a new approach to the introduction of new e-scooter and bicycle services. Rather than a mass roll-out across all the geographies in which it operates, which would have been the historical approach, Uber is instead opting for a more measured approach. It will first fine tune the business model in a handful of pilot cities before launching in all of the locations it has a presence in internationally.

Uber’s chastening is not unique to high growth tech companies. WeWork was forced to pull out of its planned IPO a few weeks ago after public market investors were quick to inform the company they saw its value, in light of the heavy losses being racked up to fuel rapid expansion, as far lower than private backers. The reaction to WeWork’s hoped for valuation has not gone unnoticed among other private unicorns, many of whom are now thought to be reconsidering their own strategies and timing to market in light of evidence of the shifting mood.

As already touched upon, even the valuations of many of the established big tech companies have lost some air over the past few months. And even corporate video conferencing SaaS Zoom, one of the year’s most successful IPOs, has seen its share price slide 30% from its highs. Professional messaging software Slack is down 50% from its post-IPO high after growth projections dropped and other high growth tech stocks including Shopify and project management software Atlassian are down 20%-30% since the summer.

But why interpret a cooling off of investor enthusiasm and stricter requirements around profitability as the beginning of a long term shift and not just a temporary risk-off stock market cycle? It’s not the first time, last autumn to winter springs to mind, overheating tech stocks have suffered a correction. But until now they’ve relatively quickly bounced back to business as usual. Why presume this time is different and a fundamental shift?

One big reason is the scope that big tech has to get bigger seems to be shortening. Until now, internationally operating technology companies have been given relatively free reign by governments and regulators. As long as they were creating jobs and investing, highly dubious tax structures, data collection and use practises and a cut-throat approach to potential competition, governments and regulators have turned a relative blind eye. That attitude has started to change and is likely to move further.

Governments are now genuinely wary of a potential shift in the balance of power the scale and wealth of the biggest tech companies threatens. And they are starting to move to put them back in their place. In September, Google settled a $1 billion bill in fines and taxes with the French authorities. The French claimed Google had unlawfully manipulated the way it received and processed payments made by French customers in order to avoid paying tax in France. Google settling rather than dragging the case out as much as possible, regardless of the final judgement, can be taken as tacit agreement France’s authorities were right. That sets a strong precedent and one that doesn’t bode well for other big tech corporations who operate comparable structures that funnel the majority of revenues through companies located in lower-tax territories.

Google has until now paid an insignificant amount of tax in most European countries as it funnels the vast majority of its sales through the Republic of Ireland, which has a flat corporate tax rate of 12.5%. Forbes reports that among the other FAANGs:

“Amazon paid corporation tax of just €16.5 million on EU revenues of €21.6 billion in 2016, Facebook paid the UK treasury £15.8 million in corporation tax in 2017 despite earning £1.3 billion in Britain, while Apple infamously benefitted from lax Irish tax laws between 2003 and 2014, when it paid corporation tax of only 0.005% on its annual European revenues”.

Google’s decision to settle with France is seen as confirming that ‘free ride’ for big tech is now over. Other big tech companies have recently ‘agreed’ to back pay taxes in EU countries. In February Apple also agreed to pay France €500 million in back taxes and in early 2018 it also agreed to pay an extra £137 million in tax to the UK, following an HMRC audit of the company.

The consensus is that big tech is starting to cooperate because it is well aware that governments are preparing to ‘go for’ them. The last years have seen growing public and political desire to see the monopoly positions of big tech challenged. There is a perception they have grown arrogant, consider themselves above the law and need cut down to size. And, even more importantly, made to contribute the same level of tax as smaller companies without the luxury of expensive accountants and complex international corporate structures do.

This is not a rising up against big tech that is confined to Europe. In Washington, and on a state level, there are also stirrings in the USA. Democratic presidential candidate Elizabeth Warren has made calls for the biggest tech companies to be broken up into smaller companies as central to her election campaign. In Februaru, the Federal Trade Commission started an investigation into competition in the tech industry. Numerous state legislatures are planning to open similar inquiries and the Justice Department has started to look into complaints Apple and Google engage in anticompetitive practices.

The G20 will next year publish a final report on its proposals on how an internationally coordinated digital services tax system could be introduced. Having to pay their fair share of tax will see the profits and market position of many big tech monopolies severely weakened. They are unlikely to retain the same ability to see off smaller competitors.

The combination of public markets growing stricter on ‘growth’ at the cost of profit and public and government pressure on the payment of tax looks like it will close the curtain on the Golden Age of big tech. The environment in which big tech operates will inevitably be different to that in which it has grown so bloated. But the consequences may well be generally positive. Tech companies should become more competitive and that would be expected to lead to greater innovation and greater social value. If that turns out to be the case it could be a case of one kind of ‘Golden Age’ drawing to a close and another, of wider value, dawning.