Yesterday, the tech-heavy Nasdaq Composite Index set a new record high: 6,321.76.
Today, the same set of companies is off nearly two percent, leaving carnage in its wake as consumer and enterprise-facing firms took knocks.
It is very hard to feel sorry for tech stocks losing air after setting record highs. It is also very hard to engender sympathy for a sector that has enjoyed a long bull cycle filled with ample, patient private capital and increasingly warm public markets. And it is perhaps hardest to worry about the state of tech when the Nasdaq isn’t just over the historical 5,000 point threshold, it cruised right past 6,000 as well.
Still, today marks an aggressive, counter-market (to some extent) retreat that we need to understand. First, what is going on, and second, who is gettin’ rekt?
There are three classes of tech stocks today that we need to understand: Cloudera, big tech, and enterprise-facing tech.
Cloudera is off more than 17 percent after it beat on revenue, profit, and forecast in its first earnings report as a public company. Why?
Here’s CNBC with a single-line takedown: “But [the firm’s] deferred revenue and billings fell short of Wall Street’s forecasts, according to StreetCount.”
Moving ahead, the biggest tech companies caught some Goldman shade that wasn’t popular. What we call the Big 5 around here is apparently called FAAMG elsewhere. The “G” stands for the first letter of Alphabet’s ticker symbol, preserved so that the companies’ acronym is palatable.
Those firms — Alphabet, Amazon, Apple, Facebook, and Microsoft — are off more than $108 billion collectively this trading session. That sum might sound large, but compared to what Goldman highlighted, it may be just a taste. Here are two key quotes, as published by Business Insider earlier today:
Indeed, the bigger story in our view is FAAMG — Facebook, Amazon, Apple, Microsoft and Alphabet — a group of five stocks which have been the key drivers of both the SPX & NDX returns year-to date. […]
We believe low realized volatility can potentially lead people to underestimate the risks inherent in these businesses including cyclical exposure, potential regulations regarding online activity or antitrust concerns or disruption risk as they encroach into each other’s businesses[.]
The same Business Insider piece notes that the companies “have added $660 billion in market value this year.” That number will be smaller tomorrow. To sum for the big companies, however, after a massive run and stretching multiples, the market has haircuts on the mind.
And finally let’s look at enterprise tech. Bear in mind that the 2017 tech IPO crop has been enterprise-heavy. If it happens that the market decides that enterprise-focused small and mid-cap tech companies aren’t worth what they were, it could ding valuations on both sides of the private-public divide, and, perhaps more importantly, flood the narrow, winding path between the two.
So, are smaller tech companies that sell to bigger firms doing poorly?
Yeah. But it’s actually worse than that.
As it turns out, some seven out of ten US-listed 2017 tech IPOs are down today, and ten out of eleven US-listed 2016 tech IPOs are down as well. (More here.)
Here are some of the lower lights, just for your own enjoyment. Keep in mind that Cloudera is leading the losing way. Here are the folks coming in after the negative gold, just from the two IPO groups:
- Mulesoft: -7.15 percent
- Okta: -6.87 percent
- Snap: -4.3 percent
- Acacia Communications: -6.7 percent
- Coupa: -5.94 percent
- Nutanix: -4.4 percent
- Trade Desk: -7.0 percent
- Twilio: -4.2 percent
And some other firms you know that are having a bad day, many of which fit into our above-described enterprise collection:
- Box: -5 percent
- Salesforce: -5.8 percent
- Hortonworks: -8.5 percent
- Hubspot: -7.5 percent
- New Relic: -6.5 percent
- Netflix: -5.7 percent
- Nvidia: -9.4 percent
- Shopify: -8.9 percent
- Square: -8.8 percent
And so on.
None of this matters if today is a one day dip. But if this keeps up, we could have just kissed the market’s high yesterday, starting the downward slope today. But then again, if you or I knew that, we’d be rich.
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