Macro conditions were already troubling for tech. With inflation at a 40-year high and the Federal Reserve signaling a series of interest rate hikes on the horizon, investors started the year by fleeing growth stocks, sending the Nasdaq in January to its worst month since March 2020, the early days of the pandemic.
The outlook over the past three weeks has gone from bad to substantially worse. Russia’s invasion of Ukraine last month rattled an already fragile stock market, sprinkling geopolitical unrest into the stew of volatility. Oil prices just spiked to their highest in over 13 years, and other commodity prices are on the rise on supply concerns as Russia is a key producer of wheat, palladium and aluminum.
Energy and utilities are the only places in the U.S. where investors are finding comfort. While everything else is getting hit, the highest-growth tech stocks are proving unpalatable to all but the most fervent industry bulls.
“The mood of the market is real foul right now for good reasons,” Snowflake CEO Frank Slootman told CNBC’s “Mad Money” on Wednesday. Shares of the cloud data analytics vendor plunged even though revenue beat estimates and the company gave an upbeat forecast.
Snowflake CEO discusses quarterly results, 2023 guidance and its ‘consumption model’
Snowflake is more than 50% off its 52-week high reached in November. That makes the company a relative safe haven compared to wide swaths of the tech industry. Numerous stocks have lost at least three-quarters of their value since peaking in late 2021, and some well-known names are down 90% or more.
Byron Deeter, a partner at Bessemer Venture Partners and a cloud evangelist, said the median member in his basket of subscription software stocks is down 53%, and that price-to-sales multiples, on average, have compressed from 25 to below 12.
“This sector has just been pounded and yet the macro trends remain very much intact,” Deeter told CNBC’s “TechCheck” on Monday. “You continue to have these extremely high-quality names but they’re on sale across the board.”
CNBC pulled a list of tech and tech-adjacent companies currently valued at $1 billion or more that have lost at least 75% of their value from their 52-week highs. Here are 10 of the most notable companies.
Discount mobile commerce app Wish has struggled since shortly after its IPO in December 2020. The stock priced at $24 and got as high as $32.85. But it’s now trading at $1.99, and is more than 90% below its intraday 52-week high from almost a year ago.
Wish’s challenges are separate from the broader issues facing tech stocks. Fourth-quarter revenue plummeted 64%, declining for a third straight period. The story has gotten worse each quarter, with the primary problem being that people are abandoning the app.
CEO Vijay Talwar spent part of the company’s earnings call on Tuesday trying to reassure investors.
“These numbers tell me we need fresh thinking to guide us back to the growth that we know is possible,” Talwar said.
Shareholders don’t see things improving anytime soon. The stock sank 16% last week.
Robinhood’s stock-trading app became a favorite for retail investors buying and selling meme stocks and cryptocurrencies, particularly after Covid-19 hit in a big way.
Robinhood’s stock, which started trading in July, has largely been a bust. It’s down 70% from its IPO price and 87% from its high in August.
The early hype cycle for Robinhood would have been hard to sustain in the best of times. On Aug. 3 investors pushed the stock up 24% despite a lack of news. On Aug. 4, it went up 50% with the launch of options trading, which has been a popular choice for Robinhood’s users. But a day later the stock fell almost 28% after the company said existing shareholders would sell up to 97.9 million shares.
In January, the company gave a bleak forecast for the first quarter and showed a decline in monthly active users.
In 2020, Stitch Fix more than doubled in value, driven by the broader surge in e-commerce stocks. Since January 2021, the shares have been on a downward trajectory. They’re down 85% from a year ago, the 52-week high, and over 90% from a record a couple months earlier.
Stitch Fix shares plunged 24% on Dec. 8, after the company warned that weaker-than-expected growth in new customers would weigh on 2022 revenue. Much of the slowdown was attributed to the rollout of a product called Freestyle, geared towards personalizing the shopping experience. CFO Dan Jedda called the transformation a “multi-year endeavor.”
In addition to fewer new customers, Jedda said the guidance “reflects the ongoing macro impact of global supply chain challenges in the industry.”
Workout bike maker Peloton became a pandemic darling in 2020. That was a long time ago.
In November, the stock fell 35% in a single session after subscription revenue, digital subscribers and gross margin all fell short of expectations. On Jan. 20, CNBC reported that Peloton was temporarily halting production of its connected fitness products, sending shares down almost 24%.
Peloton said on Feb. 8 that CEO John Foley would step down and the company would trim 20% of its workforce. The stock is down 83% from its 52-week high in July.
Affirm got a major jolt during the pandemic as its “buy now, pay later” offering was widely adopted by online retailers. Amazon even jumped aboard in August, helping boost the stock 71% that month.
Since reaching a high market cap of about $47 billion in November, Affirm shares have tumbled 81%, and the company is now valued at $9.5 billion.
The stock sank 20% or more in consecutive days in February, even after its revenue and forecast exceeded estimates. Analysts at DA Davidson said the full-year guidance was disappointing because it implied second-half weakness. Still, they recommend buying the shares.
“With expanding consumer adoption amid a broadening Affirm retail footprint, Affirm’s volume growth is accelerating while most BNPL peers are slowing,” the analysts wrote.
Opendoor pioneered the iBuying, or instant buying, home market, using a combination of technology and people to purchase houses in high volumes and then sell them. When rival Zillow announced in early November that it was exiting the market, investors saw it as a positive sign for Opendoor, sending the stock up 16% in one day.
However, in the four months since, Opendoor is down more than 70%, and the stock is down 78% from its 52-week high almost a year ago.
Opendoor’s steepest plunge came on Feb. 25, when the shares lost 23%. Like so many other out-of-favor tech companies, Opendoor topped estimates and beat on its outlook, but investors hit the exits anyway. The one key fourth-quarter metric that disappointed was contribution margin, or the revenue left from home sales after costs. That number was 4%, down from 12.6% a year earlier.
On Feb. 18, Roku’s stock fell 22%, tied for the largest single-day decline since the streaming company went public in 2017. Roku’s fourth-quarter revenue and first-quarter guidance both missed expectations, prompting Pivotal Research Group to give the stock a sell rating.
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TV unit sales have declined in the U.S. as device manufacturers have run into shortages. Roku is eating the costs rather than passing them to customers.
“In essence, Roku is going to grow revenue at a slower than expected pace in combination with a massive ramp in expenses, into potentially a global economic slowdown with increasing levels of competition,” Pivotal’s Jeffrey Wlodarczak wrote in a note.
The stock is down 77% from its 52-week high in July.
The Israeli website builder Wix is still taking market share, but at a more modest pace, Atlantic Equities analysts Kunaal Malde wrote in a note to clients earlier this month. He lowered his rating on the stock to neutral from the equivalent of buy.
A decade ago Wix was growing revenue by 95% a year. But growth dipped into the teens for the first time in the fourth quarter.
Wix shares fell 23% on Feb. 16, after the company reported fourth-quarter results, the largest decline since its 2013 Nasdaq debut. Revenue and first-quarter revenue guidance both failed to meet analysts’ expectations. The shares are 77% below their 52-week high from April.
“Sales and marketing efficiency is moderating on a gross profit basis,” Malde wrote. As it pulls back on spending, “Wix also risks losing incremental share of higher-yielding commerce websites,” he added.
Online real-estate brokerage Redfin showed surging growth in 2021 as home shoppers shook off pandemic concerns. Revenue increased 117%.
Yet investors cut Redfin stock by 20% on Feb. 18, after the company issued its fourth-quarter numbers. The shares are 76% below their 52-week high from March of last year.
Redfin’s gross margin was narrower than expected as a result of higher transaction bonuses and personnel costs, Chris Nielsen, the company’s finance chief, said on a conference call with analysts.
Revenue per transaction also inched lower. The company has seen a shift in its user base with people moving to cheaper homes, Nielsen said.
If you’ve eaten under a heat lamp at a neighborhood eatery in the past couple years, you’ve probably become familiar with the name Toast. The company grew up by providing point-of-sale software and hardware to restaurants and emerged as an industry heavyweight during the pandemic by helping customers transition to a world of contactless ordering and payments.
Toast went public in September and rallied steadily until early November, reaching a high market cap of about $35 billion. It’s since fallen about 75% to $8.8 billion.
The biggest one-day drop, an 18% plunge, came on Feb.16, after revenue beat estimates but the company’s loss was wider than analysts expected. Revenue is projected to increase 39% this year and 33% in 2023, and the company is “still a strong share gainer in the U.S. restaurant space,” according to a note last month from Mizuho Securities analysts, who have the equivalent of a hold rating on the stock.
US stocks suffer biggest daily drop in almost two years
US stocks posted the biggest daily drop in almost two years as investors assess the impact of higher prices on earnings and prospects for monetary policy tightening on economic growth. The dollar and Treasuries gained amid a pickup in haven bids.
The selloff sent the S&P 500 down 4%, with the plunge in consumer shares surpassing 6%. Target Corp. tumbled more than 20% in its worst rout since 1987, after trimming its profit forecast due to a surge in costs. Shares of retailers from Walmart Inc. to Macy’s Inc. were caught in the downdraft. The Nasdaq 100 fell the most among major benchmarks, dropping more than 5% as growth-related tech stocks sank. Megacaps Apple Inc. and Amazon.com Inc. slid at least 5%.
Treasuries rose across the board, sending the 10- and 30-year Treasury yields down as much as 11 basis points. The dollar rose against all of its Group-of-10 counterparts, except the yen and Swiss franc. Gold caught bids in the move into havens.
The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but any rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.
In some of his most hawkish remarks to date, Federal Reserve Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat. Chicago Fed President Charles Evans said Wednesday he sees a half-point rate increase at next month’s meeting and “probably thereafter.”
In Europe, new-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank.
Netflix lays off 150 employees due to slow revenue growth and business needs
Netflix is reportedly laying off nearly 150 employees in the coming days due to disappointing earnings and slow revenue growth.
According to a Variety report, the Amazon Prime Video rival might also terminate its contract with contractual contributors.
The layoffs are about 2 per cent of Netflix’s US workforce. “As we explained [in reporting Q1] earnings, our slowing revenue growth means we are also having to slow our cost growth as a company. So sadly, we are letting around 150 employees go today, mostly U.S.-based,” a Netflix spokesperson said.
The statement further revealed that the decision was primarily driven by business needs rather than individual performance. Netflix reported $7.87 billion in Q1, which was short of Wall Street’s estimates of $7.93 billion.
The report further reveals that nearly 70 part-time employees in Netflix’s animation studio will have to pack up and leave. A report by The Verge stated that about 26 contractors working on Netflix’s fan-focused Tudum website might see a termination.
“A number of agency contractors have also been impacted by the news announced this morning. We are grateful for their contributions to Netflix,” the company said.
Netflix, in its recent earnings call, revealed that it lost thousands of subscribers, which is a first for the company in over a decade.
The company expects to lose an additional 2 million in the next quarter due to the ongoing war between Russia and Ukraine. Netflix has shut shop in Russia following the country’s invasion of Ukraine.
Dollar breaks N600/$ ceiling ahead of party’s presidential primaries
Less than two weeks to the presidential primaries of the political parties ahead of the 2023 elections, the US dollar has broken the N600/$ mark at the parallel market and set the tone for a possible uptick in the coming days.
The black market rate had traded between N570/$ and N590/$ since the beginning of the year while the Central bank of Nigeria (CBN)’s intervention at the Nigerian Autonomous Foreign Exchange (NAFEX) has kept its rate under N420/$.
With the latest slump of the naira, the arbitrage between the parallel and NAFEX, which is regarded as the official window, is now inching close to N200/$. The spread measures the deviation of the controlled official rate from the real rate of exchange, with experts calling for liberalisation of the market to enable naira to find its true value.
The World Bank and the International Monetary Fund (IMF) have also warned of the repercussions of sustaining an artificially high naira while calling on the CBN to embark on market reform.
But the CBN has maintained that Nigeria, with the current high level of importation and underperformance of the industrial sector, cannot afford to float the naira completely as the exchange rate could spill out of control.
At the Lagos street market, yesterday, naira traded between N595/$ and N600/$ band. With the presidential primaries of the two leading political parties scheduled for Abuja next weekend, there is an expectation the demand pressure has not peaked, suggesting that naira is in for a protracted pressure.
At peer-to-peer (P2P) trading platforms, the dollar has been trading above N600 in the past three weeks, which had signaled that the black market rate could break through the psychological ceiling.
With that eventually happening, naira could be on a renewed free fall.
But there is also hope that it is a season to offload warehoused hard currencies for political campaigns to possibly shore up supply.
Experts are not sure where rising demand and supply of foreign exchange would lead the naira to, but the interplay between the movements of the two variables is a key factor in predicting the value of the naira in the tense political season. Godwin Owoh, a professor of applied economics, advised Nigerians to prepare for a steeper fall of the local currency, saying partisan politics and intra-party meetings, which are highly dollarised would bring much pressure to bear.
The CBN has promised to continue to protect the naira but its ability could be constrained by the equally falling reserve. For the first time in eight months, the gross reserves dropped below N39 billion on Monday, when CBN data put the figures at N38.92 billion. Effectively, the country’s reserves have depleted by $160 billion year-to-date.
Bismarck Rewane, an economist, had projected the reserve to collapse to $32 billion in the year as he expected the CBN to spend $8 to $10 billion defending the naira, which is taking much pressure from excessive importation.
The value of Nigeria’s imports increased by 64 per cent last year to N20.84 trillion. Sadly, the value of exports increased at a slower rate – 51 per cent – to N18. 91 trillion in the same period. The falling reserves and rising imports have put the apex bank in dire straits in its efforts to continue to defend the naira.
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