Financial Bailout leaves Tech & Media Behind…

Front-and-center on the Yahoo! homepage: Citigroup to buy Wachovia banking operations!  Bear, Lehman and WaMu…now we have arrived at Wachovia!? “In the latest byproduct of the widening global financial crisis, Citigroup Inc. will acquire the banking operations of Wachovia Corp. in a deal facilitated by the Federal Deposit Insurance Corporation.” How will this effect the Technology Sector and Digital Growth?

The financial markets have been on edge since Friday following the proposal for a $700 billion banking bailout hit a roadblock of opposition. (Read the $700 Billion Bailout Plan or the Alley Insider Summary.)  Surprisingly, big financial companies raised the Dow Jones more than 120 points on hopes lawmakers would hammer out the bailout rescue plan this weekend.  The Technology sector suffered a different fate, quoting Reuter’s article on Friday: Dow, S&P gain on bailout hopes, Nasdaq slips , “Tech shares took it on the chin, keeping the Nasdaq in the red, after a disappointing outlook from BlackBerry maker Research in Motion. considered a bellwether for the sector. […] The fate of the rescue plan pushed nearly everything else to the background on Friday.” The Technology Heavy Nasdaq was down almost 4 points on Friday!

Research in Motion wasn’t entirely to blame. Apple Inc, shed 2.8%, also hurting the Nasdaq. Apple is really feeling really the pain. In ZDNet article, Apple: Is It Really Recession Proof?, “Morgan Stanley analyst Kathryn Huberty thinks that Apple can’t outrun a slowing economy. And she’s betting her estimates on it.” PC’s are coming out on top  because “Apple doesn’t play the sub-$1,000 game.” The cheaper option prevails during a recession! This is going to be a recurring theme in our economy! Want proof? My girlfriend was just given the assignment to write a 5 page essay on the effects on the purchasing of Brand-Names during a recession. I will gladly post that paper on my blog as soon as it is completed.

Source: Ad Age 100 - Leading Media Companies reports

To make things seems even worse, AdAge just published the article: Revenue Growth Slowest Since 2001! “The nation’s top 100 media companies saw a 4.6% revenue boost in 2007, their slowest growth since the recession year of 2001.” Though on the bright-side of things “Media’s biggest winner is no surprise: digital, with revenue up 10.8%.” Could we be headed back to

That doesn’t change the fact that for the Media Sector, mergers-and-acquisition activity has slowed dramatically this year undoubtedly due to the  credit and capital markets current situation. “There have been only five announced U.S. media acquisitions valued above $250 million so far this year.  […] In contrast, there were 14 announced media acquisitions above $250 million by this time last year.” (AdAge)

All these facts do not mean the tech sector is suffering entirely. According to MarketWatch.com article FiSpace.Net: One Company’s Recession, Another Company’s Opportunity, “some businesses find that the economic malaise has created a greater need for their technology and services. One such company, Zippi Networks, Inc. (Pink Sheets:ZIPI), may well be in the right place at the right time as they assist individuals in successfully selling items on eBay, creating a revenue stream for their customers and the company.” The article continues to explain how many tech companies are reaping the benefit of our current economic situation.

The title for this article may be a bit misleading, but the point is simple: This is a very mixed-up place to be for the tech and online media space and I’m interested to see how this will play out in the next few months (or weeks pending any new surprises from the financial sector).

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This post was written by Joshua Russak on September 29, 2008

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