All of the stocks mentioned above have lost significant market value since the beginning of September. Investors are concerned that expensive valuations could result in a sell-off.
Earlier this week, Morgan Stanley turned bearish on cloud-based software companies, which drove stock valuations lower. Tech ETFs including XLK, SKYY, SMH, and SOXX have lost 1.1%, 2.1%, 1.2%, and 1.3%, respectively, today.
Netflix is grappling with increased competition
Although Netflix stock gained after its September quarter results, it admitted that growing competition will impact the top line. The online streaming space is getting crowded with the arrival of Disney+ and Apple TV+. Netflix might also be impacted by these companies’ lower subscription prices, especially in emerging markets.
In the September quarter, Netflix sales rose 30% to $5.2 billion. The company’s sales were marginally below the estimates of $5.3 billion. Netflix only added 500,000 subscribers in the US, which was below the forecast of 800,000. The subscriber miss was due to a high subscription price.
In the December quarter, Netflix expects to add 7.6 million subscribers—almost 14% lower than the 8.8 million subscriber additions in the same period the previous year. Competition concerns also impacted Netflix’s stock price.
Netflix stock has lost 15.4% in market value over the last year, compared to the S&P 500’s 8.3% growth. Netflix shares are trading at $278, which is 33% below its all-time high.
Tech stocks trading significantly lower than record highs
While Netflix is grappling with a slowing customer base and competition, Alteryx and other tech companies are struggling to justify expensive valuations in a volatile market. Alteryx continues to lose market value. Currently, the stock is trading 35% below its record highs. The company is valued at 16.7x forward sales despite the recent pullback. Alteryx is trading at a forward PE ratio of 123x.
Similarly, The Trade Desk, Okta, Roku, CrowdStrike, and Twilio are valued at 13x, 21x, 13.5x, 24x, and 12.6x forward sales, respectively. Despite the 30% decline in the last two months, these valuations still seem to be expensive. Despite the recent correction, most companies have increased investor wealth considerably in 2019. Roku has gained an astonishing 205% year-to-date. Alteryx, The Trade Desk, and Okta have returned 43%, 52%, and 50% respectively this year.
CrowdStrike is also trading higher than its IPO price of $34. The company continues to be one of the impressive tech IPOs in 2019 despite trading 54% below its 52-week high.
The growth story for most companies on our list remains intact. We identified several of them as solid companies to buy on major dips. However, we also know that high-growth stocks come crashing down in a bear market to trade at reasonable valuations.
The S&P 500 and the Dow Jones Industrial Average are still trading close to record highs. With the recession calls getting louder by the day, there’s a possibility for several tech stocks to lose more market value.
The upcoming quarterly results remain critical. If these stocks manage to outperform analysts’ estimates in the September quarter, investors can expect a rebound to close 2019 on a high.