Tech Stocks Compared (New Update)

Originally posted by 1ronnie ↑

https://hotcopper.com.au/threads/te...4062250/page-13?post_id=31605385#.WsYWJ-kd5Ms

I have alluded quite often to my Rent.com experience in some of my posts above and here above is the link. It is an important reminder that after an initial 'fall from grace', small caps that don't meet expectations will get further punished, in some cases up to 90% from its all time highs.

So when people make 'nothing has changed' sentiments to support a long term hold thesis, it is that there wasn't anything that everyone thought existed in the beginning, simply a mirage people get caught up in the exuberance of a bull market that has passed. Also when people often say 'it is for the bottom drawer' implying a very long term hold, it seems illogical IMO to continue holding steadfastly after the stock has failed to realise its potential on most fronts and the sp has slided dramatically (just like the Rent.com , YOW and EDE charts) -a downward spiral sp is the market's verdict on the failure of the stock. The reality is that 95% of all small cap 'wonders' eventually fail (not bankrupt but rely on ongoing CRs to sustain an endless negative cashflow position) and there are telling traits IMO that distinguish the ones that make it from the ones that will never realise their perceived potential.

So what are these telling traits on the ones that are mostly unlikely? I think there are a few
(1) management that put their interest ahead of retail shareholders (like paying themselves excessive performance shares which are not aligned to proper indicators of company performance like revenues or profits; I have had posted on this before in relation to MYQ/YOJ/BUD/GSW)
(2) company announcements and disclosures - how they were made, frequency, nature and if they were actually material and meaningful to eventual cashflow position or merely to spruik sp in the short term, opaque disclosures and use of reporting standards dissimilar to conventions
(3) revenue model - how sale and transactions contribute to scaling of revenues and how scalable is the revenue model including how quick they can be realised. In some cases e.g FGO it could take a while for closure and implementation before revenues can roll in., similar with GSW/YOJ, a lot of trials and pilots and questionable that reported growth in volume transactions do not actually translate into material revenues in 4C
(4) for start ups without revenues but a great and unique value proposition, market acceptance and gaining traction before international competition sets in. In some cases, they don't ever get the traction their potential suggests and within a given limited time, other rivals would have eaten their pie especially US rivals. For every great idea, we like to think there is no competition as most of these small caps don't really tell us the true competition landscape- it is far from reality , and all you need to do is google your company's competition to find out.
(5) large expenses and overheads- other than share based expenses for management compo as mentioned in (1). some outfits do not control expenses and have large losses despite having a good product and potential market- take a look at AXP's $23m loss and its sp after announcing it.
(6) if growth is too good to be true, it is likely to be so- case in example GSW/ BIG/ BLA
(7) management background - origin of founder, partnerships etc, and no need for 'celebrity' management that can promise the sky but don't walk the talk
(8) frequency of CR and what they were used for (e.g buying profits from M&A because their model is failing)

We can say ASX is on a witch hunt after the GSW and BIG debacle but I am sure there are many small cap stocks out there which have been making overpromising announcements in the past that has now come to bite them and you should be on the alert to determine if your stock is not one of them.

Expand

By Katie Johnson Markets & Money
Unplug, unwind and de-stress.

That mantra is one tech investors might need to hear if they’ve been following the news of late. Particularly if they’ve been exposed to the incessant headlines shrieking about the failures of our once-trusted tech juggernauts.

First came the tragic Tesla car crash, where a fatal error in self-driving technology resulted in the death of a driver, Apple software engineer Wei Huang. This was another setback for Tesla, who, much to disappointment of investors, failed to meet their first-quarter targets for production of their Model 3 electric vehicle.

Then a week later came US President Donald Trump’s Twitter attack on ecommerce company Amazon. In a series of five tweets, Trump admonished Amazon for destroying the US Post Office’s business and receiving unfair subsidies.
In a recent tweet he wrote:
‘I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!’

Trump’s fervent attack is likely motivated by the fact that Amazon’s CEO, Jeff Bezos, also owns The Washington Post — a publication that is often critical of Trump’s antics and style of government. Nevertheless, Amazon’s share price shrivelled up in response to the tweets, and is now trading at $1,400 per share down from $1,600.

Then came, as I’m sure we’ve all heard, the Facebook scandal. The data theft debacle that left Facebook and its investors floundering amidst global outrage and a #DeleteFacebook Twitter movement that is still ongoing.
These devastating blows have left the tech sector battered and bruised. And now the markets are keeling over as investors watch in dismay.

This week, Tesla, Amazon and Netflix have all reported losses exceeding 5.1%. And the New York Stock Exchange’s FAANG index, which includes Facebook, Amazon, Netflix and Google, plummeted by 4.1%.

The tech-heavy Nasdaq index also dropped by 3.9%, indicating a broader market correction that has investors concerned.
Meanwhile, the new information pouring in on the Cambridge Analytica scandal isn’t helping things one bit.

The Cambridge/Facebook scandal, which I covered back in March, initially reported that 50 million users had their data collected and exploited for targeted political advertising.
But as of this week, that figure has now been amended to estimate that more than 87 million users had their data improperly shared. This included 300,000, or 0.4%, of Australians.
These scandals have ignited a public outcry and has consumers questioning whether the intentions of these all-powerful technology companies are always benevolent.

And with growing scepticism about the future role tech companies should play in our society, things could get a lot worse from here.

Many experts are predicting the market mania surrounding tech stocks is coming to an end, or at least, a correction. As David Marsh, the managing director of the Official Monetary and Financial Institutions Forum predicts:
‘It's quite clear that some of these tech stocks got to stratospheric levels not justified by real life, and therefore whether it's Mr. Trump or worry about some vehicle going off the road and killing people, there are lots of very justifiable reasons I think to sell. I think the correction has only just started.’

Could this mark the beginning of the end for the tech sector’s bull market? After all, this is the sliding confidence and crashing prices that foreshadowed the dotcom bust of 2001. And with the reputation of leading tech companies lying in tatters, optimism about the future is understandably low.