Sentiment in technology stocks is plummeting
By Peter Garnry, Head of Equity Strategy, Saxo Bank
Technology sentiment is as dark as when the dot-com bubble burst with many companies seeing their stocks decline by 50-90%.
The tweet last Wednesday by David Sacks that “Investor sentiment in Silicon Valley is the most negative since the dot-com crash” tells you everything you need to know. The decline in high growth non-profitable companies, which we call bubble stocks, has been -69% since the peak in February 2021. Our bubble stocks basket has basically come back to the levels from before the pandemic. For some stocks it has been brutal such as Zoom, Teladoc, PayPal, and Pinterest, and we have seen that crypto related instruments are a high beta expression of liquidity preference and technology sentiment. The higher discount rate on cash flows are not only compressing equity valuations but also changing investors’ time preference demanding break-even faster than before.
Not all technology stocks are created equally with some of these fallen technology stocks actually being profitable. The list below is a list of US-listed stocks which are down more than 50% since 14 February 2021 and have a positive free cash flow yield; the list below is not meant as investment recommendations but highlighting companies with positive free cash flows yields that have been beaten down heavily. While many investors are suffering it is often during these periods of stress where investors can find very attractive long-term opportunities.
- Teladoc Health (Return: -88.6%, FCF yld: 4.95%)
- Zoom Video (Return: -77.8%, FCF yld: 5.2%)
- Pinterest (Return: -73%, FCF yld: 4.6%)
- PayPal (Return: -72.6%, FCF yld: 5.2%)
- DocuSign (Return: -71.7%, FCF yld: 3.0%)
- Bumble (Return: -71%, FCF yld: 3.3%)
- Alibaba (Return: -66.4%, FCF yld: 8%)
- Etsy (Return: -63.1%, FCF yld: 4.8%)
- Baidu (Return: -62.7%, FCF yld: 3.4%)
- Rackspace (Return: -60.6%, FCF yld: 12.9%)
Palantir down 11% on outlook miss
Palantir is another very popular technology and growth stock that was IPO’ed in late 2020 which has seen its share price collapse to below $10 last Friday from as high as $45 in January 2021. The big data analytics company with prominent US government contracts reported Q1 results that were in line with estimates growing revenue 31% y/y in Q1 and still delivering an operating loss. However, it was the Q2 revenue guidance of $470mn vs est. $487mn that caused investors to sell shares in pre-market taking the shares down by 11%. The operating margin is improving but judging from the market reaction investors want to see it improving faster.
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