Tech stock investors who take Warren Buffett’s adage about being greedy when others are fearful (and vice versa) to heart should probably give some Internet and mobile services firms a look right now.
A scan of the tech stocks that sold off in September — a month in which the Nasdaq rose fractionally — turns up quite a few growth-stage companies that either directly service consumers with the help of websites and apps, or which provide software and/or services to companies that do. Many enterprise software companies whose big 2019 gains had left them carrying steep multiples also saw large declines.
Zeroing in on the first two sets of companies, one can find some firms that had risen sharply over the first 8 months of 2019 — Roku (ROKU – Get Report) , Shopify (SHOP – Get Report) , The Trade Desk (TTD – Get Report) and Opera (OPRA) are a few of the names that fit this description. However, there were also some companies that were already down meaningfully on the year — Uber (UBER) , Lyft (LYFT) , Upwork (UPWK) , Fiverr (FVRR) and ANGI Homeservices (ANGI – Get Report) come to mind. And there were others, such as Netflix (NFLX – Get Report) and Spotify (SPOT – Get Report) , that had been up on the year but had fallen short of the Nasdaq’s 20% gain.
In a nutshell, markets didn’t discriminate much when it came to driving down the shares of North American and European Internet/mobile companies that are seeing double-digit growth. While giants such as Alphabet and Amazon were able to escape the month flat or down slightly, only a handful of smaller firms were so lucky.
Uber, Lyft and (more recently) Peloton’s (PTON) disappointing post-IPO performances, together with WeWork’s shelved IPO, appears to have soured investor attitudes towards many growth-stage companies, or at least made them rethink the multiples they’re willing to pay. In addition, judging by the broad-based nature of the selling that occurred, margin calls and fund redemptions might have had an impact.
Regardless of the exact reasons why so many Internet/mobile stocks were pushed lower, the indiscriminate nature of the selling has arguably created some opportunities for a group of companies that generally have little or no direct China/trade war exposure. I recently highlighted Roku, Fiverr and Pinterest (PINS) as three names that look more compelling following their September swoons, and also made a case for why Netflix’s valuation was at least getting close to interesting.
There are some other names that might be worth kicking the tires on as well. ANGI Homeservices, for example, could appeal to value-oriented investors. Following a 56% 2019 decline that has come amid a Q2 miss and full-year guidance cut, The Angie’s List and HomeAdvisor parent trades for just 2.2 times its expected 2020 revenue. And in spite of its recent stumbles, ANGI is still expected to grow its top line 19% this year and 21% next year, as it grows its penetration of a U.S. home services market in which most transactions still happen offline.
And though European browser and news app developer Opera (OPRA) does carry some risks — it competes against Google Chrome and relies heavily on a search integration deal with Google for revenue — there is a bull case to be made here. This is a company that’s seeing healthy double-digit user growth, is expected to grow its revenue 61% this year and 30% next year, and is trading for just 16 times its expected 2020 EPS and (excluding cash) less than 3 times its expected 2020 revenue.
Not every Internet/mobile company that sold off in September suddenly looks like a bargain. Some still look fairly expensive, while others face business-related issues that warrant caution. But just as the broad chip stock selloffs that happened in late 2018 and the spring of 2019 amid trade war fears created opportunities for investors willing to brave the waters, the recent wave of selling in growth-stage tech companies has made the shares of some fast-growing companies look a lot more interesting.
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