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Consumer technology went backward a lot this year for a field that has been known for its fast-paced innovation in the past.
The Nasdaq CTA Internet Index is down this year, while the S&P 500 is up by more than 27%. As of September 30, more than 30% of Cathie Wood’s famous ARK Innovation ETF was invested in information technology. This year, the net asset value of this fund has gone down by 21%, which is nearly 49 percentage points worse than the S&P.
She isn’t by herself. If you put enough money into tech stocks this year, you probably lost some of it. Some of the worst companies are Peloton Interactive, which makes fitness equipment; Chegg, which makes technology for education; and Poshmark, which sells clothes online. At times, there were so many companies blowing up at the same time that it was hard to keep track. For example, Chegg, Peloton, Zillow Group, and Vimeo all went down after their most recent earnings reports, losing a total of $26.3 billion in market value in a single week last month.
The huge run-up in stay-at-home stocks in the second half of last year was a big part of the problem. Many of the tech companies that everyone was excited about in 2020 turned out to be busted because their prices went up too quickly. The numbers just couldn’t keep up in the end.
At least Ms. Wood won’t change the plan that didn’t work for her this year. In an interview with Bloomberg earlier this month, she said that she thinks it will give her “a compound annual rate of return of about 40% over the next five years.” She stressed, “That’s a quadrupling.”
But investors shouldn’t think that all of the drops this year will turn into easy wins next year. Zillow, for example, is down more than 50% so far this year, and while its future without buying looks like a much more steady way to make money, the online real estate company is still worth more than twice as much as it was at the start of 2019 when it started making a lot of money with automated home flipping. If next year’s gains in the tech sector have to be earned, many of its stocks still have a long way to go.
Poshmark just started selling clothes in India, which has given investors hope that growth in other countries will finally help the stock take off. But Poshmark’s earnings for the third quarter were less than expected, and the company’s guidance suggested that COVID-19 uncertainty would also hurt Poshmark’s chances outside the U.S. next year. After changing Poshmark’s rating from “hold” to “buy” in July, based in part on the promise of “rapid expansion in new markets,” Stifel analyst Scott Devitt toned down his excitement: “The pain of the recommendation so far has been intense,” he wrote last month, “but hopefully will subside with the benefit of time.” If that’s the best he can do, he’ll say “buy.” Investors might want to calm down.
Some companies just didn’t do as well as they could have in a competitive environment that, unlike 2021, isn’t going away anytime soon. This year, Amsterdam-based Just Eat Takeaway.com bought Grubhub, which is based in the U.S. Since the beginning of the year, the company has lost about 50% of its value. Both companies’ numbers show that the growth of food delivery has already reached its peak. Just Eat says that it will focus more on Grubhub’s big cities next year, like New York City, where commission caps have been put in place permanently. At least DoorDash keeps making money by expanding into new areas like alcohol and convenient delivery. Even so, tough comparisons to the same time last year have caused the U.S. market leader in food delivery to lose about 19% of its value since its first day of trading last December.
Remote work isn’t dead, but it looks like future jobs will need to be done in the office at least some of the time. This means that companies like Zoom Video Communications, whose sales are down 43% this year, will have a hard time growing their sales by more than 100% year over year again soon, let alone for five consecutive quarters. Wall Street thinks Zoom’s sales for the quarter ending on January 31 will be up less than 20% from the same time last year. DocuSign, which is down 29% this year, and Vimeo, which is down 65% since it split off from IAC/InterActiveCorp in May, will face the same problems as Chegg, as long as schools can stay open.
Even though some companies have found their niche, they still need to show that they can appeal to a wider audience. This year, Stitch Fix’s sales are down 66%, and the company is in the middle of what management says could be a multiyear makeover to make a la carte shopping a priority. Rent the Runway’s stock is down 54% from where it closed on its first day of trading in October. The company is still trying to get back to the number of subscribers it had before the pandemic. It has now added resale to try to get more people interested in its subscription platform over time.
Peloton’s stock has been moving lately based on what happened to a character on a fictional TV show who rode the company’s bike. This is not a good sign for the company’s near-term prospects. If making money off of stories was what the early pandemic was all about, many of these companies seem to have lost the plot.
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