In this article, we discuss the 10 biggest losers of the technology stocks crash. If you want to skip our detailed analysis of these events and the first five of these stocks, go directly to Technology Stocks Crash: 5 Biggest Losers.
Inflation and a looming rise in interest rates has pushed investors towards value offerings in recent weeks. This shift has come at the cost of growth stocks in the technology sector that are crashing even as they report stellar earnings. Some of the technology companies that have registered a dramatic drop in share price over the past few weeks include PayPal Holdings, Inc. (NASDAQ:PYPL), Meta Platforms, Inc. (NASDAQ:FB), and Shopify Inc. (NYSE:SHOP), among others discussed in detail below.
Major indexes are also down since the beginning of the year. These indexes had grown growth-heavy in the past few years amid a massive surge of tech-related spending in the market, accelerating to record highs during the pandemic. The S&P 500, dominated by five big technology companies, is down close to 9% year-to-date. The NASDAQ Composite is down nearly 14%. These declines have come even before the Fed has raised interest rates, indicating that there is a larger correction to come when the rates do rise.
Morgan Stanley analyst Michael Wilson believes that the major indexes could register even steeper declines unless a slowdown in inflation or “some sort of catalyst” curbs the market sell-off of technology stocks. However, Goldman Sachs expects inflation to remain at high levels in the coming months. Furthermore, analyst David Kostin told investors in a research note in January that a disappointing start to the earnings season spelled more trouble for stocks, especially those that operate in the more speculative parts of the market.
Pixabay/Public domain
Our Methodology
The companies that operate in the technology sector and have registered a more than 10% decline in share price over the past month were selected for the list. Data from the more than 900 elite hedge funds tracked by Insider Monkey that filed 13Fs for the December 31 reporting period was used to identify the number of hedge funds that hold stakes in each firm.
Technology Stocks Crash: Biggest Losers
10. DraftKings Inc. (NASDAQ:DKNG)
Number of Hedge Fund Holders: 34
Percentage Decline in Share Price Over Past Month: 11%
DraftKings Inc. (NASDAQ:DKNG) is a digital sports and entertainment company. Hedge funds doubled down on the stock in Q4 even as the share price continued to crater. DKNG shares have now lost 70% of their value since early September. At the end of the fourth quarter of 2021, 34 hedge funds in the database of Insider Monkey held stakes worth $1.30 billion in DraftKings Inc. (NASDAQ:DKNG), up from 28 positions in the preceding quarter worth $1.32 billion.
On February 22, Wells Fargo analyst Daniel Politzer downgraded DraftKings Inc. (NASDAQ:DKNG) stock to ‘Equal Weight’ from ‘Overweight’ and revised the price target down to $19 from $41, noting there was concern around the growing operating expenses of the firm and their impact on the company’s path to profitability.
Just like PayPal Holdings, Inc. (NASDAQ:PYPL), Meta Platforms, Inc. (NASDAQ:FB), and Shopify Inc. (NYSE:SHOP), DraftKings Inc. (NASDAQ:DKNG) is one of the growth stocks feeling the heat of an economic slowdown.
In its Q2 2021 investor letter, Alger, an asset management firm, highlighted a few stocks and DraftKings Inc. (NASDAQ:DKNG) was one of them. Here is what the fund said:
“DraftKings Inc. (NASDAQ:DKNG) is an online gaming operator. Its legacy Daily Fantasy Sports (DFS) allows users to virtually draft teams of players from professional sports leagues and potentially earn a payout based on how athletes perform. DraftKings Inc. (NASDAQ:DKNG) Online Sports Betting (OSB) involves the company taking wagers or bets from customers on sporting events. The company’s third offering, Online Casino (iGaming), involves customers betting real money when playing casino games like slots and blackjack online.
DFS is legal in most states, while approximately 25% of the country’s population has access to OSB and approximately 10% has access to iGaming. Within a year, we expect approximately 40% or more of the population to have access to OSB as legalization moves rapidly.
DraftKings Inc. (NASDAQ:DKNG) reported a strong quarter, with revenues exceeding expectations by more than 30%. We think the stock underperformed due to the time period between the conclusion of March Madness and the start of the NFL season being a weaker betting period and concerns about more intense competition. Concerns around tough comps have also hindered performance of DraftKings shares. We note that monthly state data continues to be robust, showing no signs of slowing from reopening. We also believe DraftKings Inc. (NASDAQ:DKNG) is increasing its potential to gain market share by moving its tech-platform to SBTech, which is a sports betting platform the company acquired as part of a SPAC deal. Legalization of sports betting by states has also been robust.”
9. Adobe Inc. (NASDAQ:ADBE)
Number of Hedge Fund Holders: 94
Percentage Decline in Share Price Over Past Month: 11%
Adobe Inc. (NASDAQ:ADBE) is a diversified software firm. On January 4, UBS analyst Karl Keirstead downgraded the stock to ‘Neutral’ from ‘Buy’ and lowered the price target on it to $575 from $635, noting that there was growing concern that tech-related spending would hinder the growth of the company in 2022.
The hedge fund sentiment around Adobe Inc. (NASDAQ:ADBE) remains mixed. At the end of the fourth quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $10.4 billion in Adobe Inc. (NASDAQ:ADBE), compared to 95 positions in the previous quarter worth $12.6 billion.
Here is what Palm Capital had to say about Adobe Inc. (NASDAQ:ADBE) in its Q1 2021 investor letter:
“Adobe Inc. (NASDAQ:ADBE) has a near-monopoly in content creation software with dominant applications including Photoshop, Lightroom and Illustrator that are critical in the lives of creative professionals. These applications are not only the best in the industry but also have high switching costs as it takes designers many years to become adept at using them. This investment of time is a sunk cost and makes it costly for designers to switch to an alternative. Additionally, as most creative professionals use Adobe’s suite of products it also has a network effect advantage – creative professionals use it because most other creative professionals do.
This creates stickiness of revenue, the visibility of which is enhanced by the fact that more than 90% of Adobe’s overall revenue is subscription-based and a large portion of this is paid in advance.
As Adobe’s programs have already been developed and they are now largely distributing this over the internet, the company’s gross profit margins are a towering 85%.
Adobe Inc. (NASDAQ:ADBE) also has great economics. It is capital light. This means that it does not need physical assets like machinery, property, or stock to operate. As its assets are intangible, it does not need to take on debt to finance them. And its marginal cost of serving additional customers is minimal. The company is highly cash generative, not only because some of its revenue is received upfront, but also because it pays a large portion of salaries with shares and share options. This is evident from its balance sheet – it has had a large net cash position for seven of the past ten years. Furthermore, investments in its intangible assets are expensed rather than capitalized resulting in a low tax burden relative to typical capital-intensive businesses.
Finally, Adobe Inc. (NASDAQ:ADBE) has lots of room for growth. The shift to digital creates a strong underpin for demand growth over the long term. And Adobe’s switching costs give it the power to grow revenue by increasing prices. Additionally, the subscription model is growing Adobe’s market in several ways. Firstly, it makes it affordable for small businesses, opening a new market to Adobe. Secondly, by freeing up IT capex and fixed costs, the model also makes it more affordable for large businesses, incentivizing them to take on pricier options. Thirdly, as the company is not updating its products that were sold under the licence model, the subscription model is beginning to capture many non-compliant users.
Over the next ten years, we expect Adobe’s sales to more than double and its free cashflow margin to expand to almost 40%.
These characteristics make Adobe Inc. (NASDAQ:ADBE) an exceptional business and it is one half of the reason we have been invested for nearly three years.
This example as well as our examples of the aggregators earlier illustrates the impact that the internet has had in not only creating more profitable, less capital-intense businesses but also in allowing businesses to grow to much larger sizes at a much faster pace than before. It partly explains the pace with which new businesses are reaching $100bn valuations whether on public or private markets.”
8. Sprout Social, Inc. (NASDAQ:SPT)
Number of Hedge Fund Holders: 31
Percentage Decline in Share Price Over Past Month: 12%
Sprout Social, Inc. (NASDAQ:SPT) provides web-based social media management tools. Top hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Zevenbergen Capital Investments is a leading shareholder in Sprout Social, Inc. (NASDAQ:SPT) with 1.2 million shares worth more than $113 million as of December 31.
On January 12, Barclays analyst Raimo Lenschow lowered the projected price target on Sprout Social, Inc. (NASDAQ:SPT) to $92 from $162 but kept an ‘Overweight’ rating on the shares, highlighting that the valuation levels for the software sector were trending towards long-term averages rather than recent highs.
In its Q2 2021 investor letter, asset management firm ClearBridge Investments highlighted Sprout Social, Inc. (NASDAQ:SPT) among its commentary. Here is what the fund said:
“Sprout Social, Inc. (NASDAQ:SPT) (is one of the) companies that have become go-to platforms for small and medium size businesses (SMBs) engaged in e-commerce and social media marketing, rebounded strongly in the quarter after being caught in the selloff among high-multiple growth names since Vaccine Monday. These and the portfolio’s other disruptors had thrived through the first part of the pandemic, leading us to trim positions into strength and reallocate cash into more attractively priced evolving opportunities and steady compounders that had been overly punished by lockdowns and a drop in economic activity.”
7. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 72
Percentage Decline in Share Price Over Past Month: 13%
Intel Corporation (NASDAQ:INTC) makes and sells computer products and technologies. At an Investor Day conference recently, the company outlined that it was investing in new factories and technologies to meet rising chip demand, resulting in lower profit margins guidance for 2022. However, the company said it expected the margins to climb from 2025 onwards.
Hedge funds have been piling into Intel Corporation (NASDAQ:INTC) in recent months. At the end of the fourth quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Intel Corporation (NASDAQ:INTC), compared to 66 funds long the stock a quarter earlier, though those positions were worth nearly $1 billion more at $6.4 billion.
6. Resideo Technologies, Inc. (NYSE:REZI)
Number of Hedge Fund Holders: 24
Percentage Decline in Share Price Over Past Month: 14%
Closing out the first half of the list is Resideo Technologies, Inc. (NYSE:REZI), which develops and sells hi-tech thermal and security solutions to the commercial and residential markets. Major hedge funds are bullish on the stock. Among the hedge funds being tracked by Insider Monkey, New York-based firm Praesidium Investment Management Company is a leading shareholder in Resideo Technologies, Inc. (NYSE:REZI) with 6.8 million shares worth more than $177 million as of the end of 2021.
Resideo Technologies, Inc. (NYSE:REZI) posted its financial results for the fourth quarter on February 15, reporting earnings per share of $0.44, beating estimates by $0.07. On the other hand, the company’s revenue of $1.4 billion missed expectations by $20 million.
In addition to PayPal Holdings, Inc. (NASDAQ:PYPL), Meta Platforms, Inc. (NASDAQ:FB), and Shopify Inc. (NYSE:SHOP), Resideo Technologies, Inc. (NYSE:REZI) is one of the growth stocks that has clearly been affected by the rise of inflation.
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Disclosure. None. Technology Stocks Crash: 10 Biggest Losers is originally published on Insider Monkey.
