Tech Stocks Crumble As The Market Demands What They Can’t Deliver

Tech Stocks Crumble As The Market Demands What They Can’t Deliver

Posted May 7, 2014 by Alex Wilhelm (@alex)

It’s a nasty day for technology companies in the public markets, as aging giants like AOL are falling right alongside upstarts with larger market caps like Twitter and Groupon that are popping negative.

Forget your IPO window. This is nasty. Keep in mind that venture capital behaves like an amped version of the NASDAQ, and when the latter falls apart, it closes the liquidity cycle for private money, which impacts valuations down to the earliest stages. (So it’s not turtles, but actually QQQ all the way down.)

Twitter was hammered yesterday during its unlock period. Today, it has extended its losses, and is now down more than 20 percent over both days. AOL, the parent company of TechCrunch, is down more than 20 percent today alone. We had decent revenues, but less profit than expected.

King Digital, which today reported its first earnings as a public company, is down more than 10 percent. Its numbers on a year-over-year basis were great. But on a sequential quarter basis its number of unique paying users is down. That’s not good.

FireEye is down more than 20 percent. EPS guidance matters, I suppose. Oh and Groupon is down 17 percent after its earnings, again, failed to excite investors.

After a brilliantly light period of valuing either revenue growth or user growth over every other possible statistic, the market is singing a new hymn. Welcome to the new gospel.

Companies built with a now former-market mindset in their DNA will have a harder time going public. If King can make squadrons of dollars and still take a punch to the neck, everyone else is going to have a difficult time. Check the following:

Revenue increased to $607 million, which beat FactSet’s estimate of $602 million. Gross bookings were $641.1 million, which is up from the previous quarter of $632 million. EPS was $0.61 versus analyst estimates of $0.57.

And it’s down. A fluke? Not even close. Twitter has beaten expectations both quarters it has reported earnings as a public company. And it has been roughed up both times. Its valuation, now much lower than before it lost more than half its value, is still rich for a company that cannot turn on GAAP profits. Non-GAAP is fun, but discounting dilution as a non-cost, and not just a non-cash cost, only gets you so far.

For now, turn down for what? Market sentiment, apparently.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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