There is a recent trend in the world of finance and commerce – and more particularly in the world of tech, to favour constant growth over any other metric of success. It’s part of the reason why mergers and acquisitions and private equity in the tech world are given such attention: very few companies can continue rapid expansion organically.

Expanding organically is also possible, but it requires huge expenditure on research, equipment, and most of all people. For years now, investors and the wider public have not been so bothered about the costs involved in constant growth – whether through acquisitions or organic expansion. 

So long as companies are growing – and their market capitalisations climbing, the logic goes, then things must be good. It’s driven in large part, many say, by some of the earliest and most famous examples of hugely disruptive tech companies: Facebook, Uber and WeWork spring to mind. Not immediately profitable, but eventually able to turn huge market share into returns for investors.

You may be questioning the inclusion of one of those companies. Hasn’t WeWork (now just “We”) gone nearly bust? Well – yes. The company’s huge IPO flop, in which it went from being valued at around $65 billion upon going public, and then was valuated rapidly downwards to about $15 billion, and then the offering was called off, has caused a few ripples in the marketplace.

It seems that investors realised that constant growth does not automatically mean success. It seems that WeWork had grown too much too soon, and the business simply was not worth nearly as much as it had made out. 

Google earnings

WeWork’s IPO-that-wasn’t is arguably a turning point, in which the push back against growth at all costs is brought down to earth by a need for actual profit to start rolling in. Others argue that it is symptomatic of changing tastes in the investment community – things are starting to get a little rocky, there are murmurs of a bubble, and investors want to see cold hard cash: results, rather than an opportunity for results. 

And that, some onlookers argue, is the reason for Google parent company Alphabet’s reduced share price following on from its recent earnings call. It announced lower-than-expected profits as a result of major expenditure and expansion into cloud computing and consumer electronics, Reuters reports.

Per Reuters: “The company, the world’s leading provider of internet search, advertising and video services, posted its highest-ever quarterly expenses. It missed analysts’ estimates for third-quarter profit by about $1.7 billion (£1.32 billion), though it beat revenue estimates by about $175 million.”

“Alphabet shares lost 1.6% after-hours, to $1,268.50, nearly erasing the 1.95% gain notched in regular trading when Reuters, citing sources, reported Google had made an offer to acquire U.S. wearable device maker Fitbit.”

It is arguable that not long ago, continued expansion, of the type that Google is employing, would have pleased investors. The share price suggests not, but comments from an investor quoted by Reuters shows a more nuanced view of the situation: “CEO Sundar Pichai can turn off the speculative spending at any time if he suddenly becomes more interested in profitability – but we suspect most investors would rather he stuck to the approach.” That was Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Attempted rapid expansion can mean a lot of things for employees: it often brings with it a certain culture, for instance. As well as that, it’s likely to mean new colleagues; Google is employing 20,000 new staff to meet the demands of its new business units, Reuters says. 

Perhaps expansion at all costs is good for some – the tech world is, as ever, a candidate’s market

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