Current US tech bloodbath


(Richard varga) #1

The title says it all… what is everyone’s opinion on the current state of US tech stocks??
… is this just a healthy correction before we go into new highs and the 10 year bull run continues OR is this the start of the dreaded bear market some that people think is overlooming the US tech world??


(Vladislav Kozub) #2

Whoever can answer this question with an absolute certainty, is most likely making millions at Goldman :wink:

Speaking of assumptions, it is up to individuals risk perception and growth faith. This decade’s “bull market” can be seen as a dotcom bubble V2.0 tech bubble, which led to indecent bankruptcies and market value losses in the past (Amazon alone lost 90% of their market cap back then). Similarly, there is no certainty on stocks surging based on the recent trends now.

But on the other hand, many of these companies (the US mainly) constantly and consistently grow their top line at 10 to 30 per cent annually. Should this trend continue, $200bn of revenue today could become $1.2tn in 10 years or $7.6tn in 20 years (assuming 20% growth). Considering at least 10% profit, even Amazon with their notorious P/E ratio of 260 could have a P/E of just 1 if calculated in today’s market cap terms.

Therefore, if only discussing tech in isolation, for me personally it is on sale. If it will go down further - I will still consider some of these stocks being even more unreasonably discounted. As long as they are not heavily debt-structured, of course :roll_eyes:


(Kenny Grant) #3

These are interesting times. Here is a chart of the major US indexes vs the FTSE, which is an interesting illustration of the growth over the last few decades. Viewed like this investing in the FTSE has brought terrible returns compared with these US indexes (if only I’d known better!).

The large purple spike at the start is of course the dotcom boom in NASDAQ. There has been a divergence between NASDAQ and the other indicators, but IMO that is more to do with fundamental changes in value than irrational exuberance - the exuberance has been general and over a long period. Note that all three US indicators are crashing at the moment, after a decade of near nonstop growth - they may well recover a bit but I don’t expect the rapid growth to continue. I don’t think it is comparable to the Dotcom bubble though - that was a classic mania, this is more like a steady melt up which has led to massive valuations across the board - the entire DOW is overvalued IMO and overdue a correction, though some of the increase is justified by the massive shift in world consumer spending toward these US tech giants over the last decade, but how much?

I think the tech companies are just a convenient fall-guy at the moment - a focus for panic. Their results have been fine, if a little muted, but they have the highest valuations and are seeing the steepest fall. The falls are general though and I expect to continue over a few months (with upturns of course). The following factors will I think make it difficult to escape this downturn:

  • Rising interest rates across the world
  • Withdrawal of QE across the world
  • Growth of facism/populist nationalism and erosion of free trade
  • Trade wars breaking out, competitive devaluation

Each of the tech companies needs to be considered in isolation though, they have very different revenue streams - FB is advertising, Google are mostly advertising with some Cloud, Apple Hardware and Cloud (consumers), Amazon Advertising, Cloud, and Shopping. Personally I see FB as most vulnerable and least likely to survive in the long term - to me it is Myspace rather than Microsoft. Amazon is really interesting - it is down almost 25%, but it has risen so much this year that is STILL up year on year! That’s almost terrifying growth for a large established company like that and I feel there is still a lot of room to grow for them. If you believe in some of these stocks this is a great time to start buying some IMO - I plan to start investing in US stocks soon for this reason.


(Big Boss) #4

I wouldn’t short technology. Especially over the long run or if you have a long time horizon.

In Marc Andreessen’s words, “Software is eating the world”.


(Vladislav Kozub) #5

Have to disagree. Albeit Facebook.com is a dying dog, $FB is a promising stock. Yes, its main product is stagnant and its PR is atrocious but MySpace comparison is probably not the most accurate. $FB is sitting on a huge cash pile of circa $50bn and they are well aware of the importance to acquire any potential rivals, which they do all the time. There is also plenty of room to monetise WhatsApp and Instagram, its two key products, as well as other minor ventures which are not as popular (yet) but have potential.

And there is generally ample experience $FB’s executives possess to face the challenges MySpace did not have a chance to succeed in.


(Kenny Grant) #6

I find this one (Facebook) really fascinating and hard to judge, but am not as optimistic as you about their chances. It will be interested to see how they make the transition to a company with broader revenue streams. I compare with myspace as they depend on fickle consumers posting content and don’t have much of a moat IMO.

At present they are bleeding users, particularly young ones, they’ve been hit by many privacy scandals, their revenue depends in advertising which can dry up very quickly (as we saw in the dotcom boom), so I think they’ll have a hard time adjusting, particularly if there is a quick crash in the tech market which craters their revenue, but you may be right, they might be able to stay alive and grow via acquisitions.


(Big Boss) #7

I dont think it’s right to say they are “bleeding users”.

They DAU/MAU ratio last quarter was quite resilient and MAU decelerated, which is expected. Even if you think they are losing users in Core FB, it’s being picked up in Instagram. As an FYI, their MAU numbers are only disclosed on Core FB and not on Instagram or WhatsApp, which have est 1b and 2b users, respectively.


(Kenny Grant) #8

I was thinking of this story (just a poll I know):

Frankly I don’t trust FB self-reported numbers, but this is a personal opinion and not one I expect many to share. I agree Instagram and WhatsApp have helped keep users in the fold, those acquisitions were interesting too though - a very high price was paid for both (per user and for the companies), mostly in FB stock, which then arguably inflated the FB valuation, making the FB stock more valuable…

This is the least stable of the US tech giants IMO, but will be interesting to see how they evolve.


(Harry) #9

Worst case scenario with Facebook is the company has to split up into three separate businesses: FB, Instagram, WhatsApp. Separately they would be worth more than they are combined, plus the above mentioned cash!


(Vladislav Kozub) #10

Title:

Nearly half of young users have deleted the app

First paragraph:

Facebook users finds that 44 percent of users ages 18 to 29 have deleted the app from their phones in the past year.

Body text:

Overall, 26 percent of survey respondents say they deleted the app, while 42 percent have “taken a break” for several weeks

Looks like a clickbaity article with body text being inconsistent with the title.

And as @justin has mentioned, judging FB by Facebook.com means not considering a full picture for informed decision-making.


#11


(Vladislav Kozub) #12

Revenue growth 33%
Daily Active Users growth 9%
Monthly Active Users growth 10%

2 billion (!) people use any of Facebook’s services (WhatsApp/Facebook/Instagram/Messenger) at least daily


(Kenny Grant) #14

Yes my concerns are not so much with user growth/activity (though I think that will grow slower and frankly don’t trust their numbers given their unscrupulous past), but with their revenue being concentrated almost solely in advertising, which is really vulnerable in a downturn. If they managed to become part of the infratructure of the internet (for example owning SSO, hosting user content for money) or had other big sources of revenue, I’d be more optimistic. But we’ll see, it will be very interesting to see how they evolve and you may well be right - they have made very canny acquisitions to get to this point and stay relevant.

At roughly half the valuation of Apple it feels high to me in comparison though - Apple has multiple strong revenue streams, strong lock in with hardware and software, customer loyalty, an untarnished brand and growing services income. I imagine Apple will coast for some time making lots of money even if they have peaked creatively.

In other tech stock news Amazon have started to recover from a remarkable plunge of 25%, and Apple are now plunging after hours as a result of slightly soft guidance, in spite of good figures this quarter. The market is definitely very nervous.


#15

Amazon up 6.8%:hushed:


(Big Boss) #16

What bloodbath? :joy:


(Kenny Grant) #17

:joy: Amazon was down 25% so quite the fall. Heading up again now though.


#18

Indeed, annoyingly before US stocks launch on FT


(Kenny Grant) #19

More bad news on tech stocks yelp down 26% in one day - this does not bode well for other advertising dependent companies


(Richard varga) #20

We’re still not out of the woods yet… However the charts are looking similar to the fall we had in march…

What do we want?! -US STOCKS!!
When do we want em?!? - BEFORE THEY RECOVER!!(if they do recover)

haha just joking, i know you guys will be working hard to deliver them!

So what does everyone think… Will 2019 be another year of gains or is this tech growth slowing??