what is industry life cycle analysis 
industry life cycle analysis is part of the fundamental analysis of a company involving the examination of the stage an industry is in at a given point in time there are four stages in an industry life cycle expansion peak contraction trough an analyst will determine where a company sits in the cycle and use this information to project future financial performance and estimate forward valuations e g forward price earnings ratios understanding industry life cycle analysisthough not necessarily the case the life cycle of a particular industry will follow the general economic cycle an industry life cycle may lead or lag an economic cycle it also can vary from an economic cycle s phases in terms of expansion or contraction percentages or duration of peak and trough stages as the economy gathers strength the industry life cycle begins again with the expansion phase as mentioned at the outset an industry life cycle is typically tied to the economic cycle the entertainment and leisure industry is an example of such an industry the technology industry on the other hand has exhibited life cycle movements at variance with the economic cycle for instance tech industry profits have boomed even in times of no economic growth using industry life cycle in analysisanalysts and traders often use industry life cycle analysis to measure the relative strength and weakness of a particular company s stock a company s future growth prospects may be bright or dim depending on the stage that it is in during an industry life cycle porter s five economic forces change as an industry matures for example rivalry is most intense between companies in a sector during the growth stage startups slash prices and ship products as quickly as possible in a bid to garner as many customers as possible during this time the threat of new entrants eating into an existing company s market share is high the scenario changes in the maturity stage less competitive startups and inferior products are weeded out or acquired the risk of new entrants is low and the industry s product is mature enough to be accepted in mainstream society startups become established firms during this stage but their future growth prospects are limited in existing markets they must search out new avenues and markets for profits or risk extinction example of industry life cycle analysisthere was a boom in social media during the early 2000s due to the success of myspace a social networking site that surpassed google as the most visited place on the internet in 2006 1 sites like orkut a google venture and bebo competed to gain users in a crowded landscape facebook now meta which started in 2004 was also gaining traction among universities and was considered the second most popular social media site 2 there were signs of consolidation when myspace was acquired by rupert murdoch s newscorp ltd for 580 million in 2005 3but that valuation turned out to be inflated after facebook overtook myspace in rankings 1 myspace eventually petered into insignificance after facebook became a social media behemoth with the exception of a few like x platform formerly twitter other social media sites also fell by the wayside the social media sites that survived made a thumping debut on the stock market their valuations were considered high in comparison to their revenues mainly because investors expected significant growth in the future as social media became popular throughout the world by may 2019 however facebook s valuation had declined and the company warned of plateauing growth figures in the future snap inc another social media company was in a similar situation both companies responded by expanding the scope of their operations to include other products such as cameras and drones in their portfolio as of december 2021 facebook has just changed its corporate parent name to meta platforms 4 the company has rebranded and is developing new products and technology these developments resulted in both analysts and the company itself seeing meta s valuation increase again 56