
Tech Shares Fail to Join the Party - neverminder
http://www.wsj.com/articles/tech-shares-fail-to-join-the-party-1461372935
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braymailloux
Is anyone going to talk about the content of the article or continue on with
the pay wall drivel?

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MAGZine
Full text, because people are having issues. BTW: Use the "web" link, but open
it in incognito.

Technology shares​are struggling to regain favor with investors, even as the
rest of the U.S. stock market is back near record heights.

Many of the industry’s leading companies have followed up a rocky start to the
year with weak earnings reports this week and are warning of more bleeding to
come.

Business conditions for old-line tech stalwarts like International Business
Machines Corp. and Intel Corp. have grown tougher, while Microsoft Corp. and
Google parent Alphabet Inc.​disappointed investors with their results this
week. In addition, one of the sector’s key sources of support—successful
stock-market debuts by highly anticipated tech companies—also has dried up.

The result has been a selloff. Technology companies in the S&P 500 fell 1.9%
Friday, nearly erasing the sector’s gains for 2016. Alphabet’s 5.4% fall
Friday was its biggest since October 2012 and wiped out $29 billion from its
market capitalization.

Investors have pulled a net $4.5 billion from technology mutual funds and
exchange-traded funds in 2016 through the end of March, according to
Morningstar. That follows three years of net inflows.

“The market is near all-time highs again, but I don’t feel good,” said David
Rudow, a senior equity analyst at Thrivent Asset Management. “There’s some
good stuff out there, but it’s not like things are rosy and things are
booming, especially in tech.”

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A slew of technology companies is scheduled to report results next week,
including Apple Inc., Twitter Inc. and Facebook Inc., whose stock has risen by
double-digits the past two years. Apple is currently projected to be the
largest contributor to the tech sector’s first-quarter earnings decline,
according to FactSet.

The initial-public-offering market, which typically juices tech companies’
stock prices, also dealt a blow to the sector this week. SecureWorks Corp.
ended a four-month-long drought in U.S.-listed technology IPOs this week. But
the cybersecurity firm’s debut came at a lower-than-expected size and
valuation, and its stock opened its first day of trading lower and ended the
day flat.

“The technology IPO market was slow last year and will continue to be slow
this year,” said Colin Stewart, head of technology global equity capital
markets at Morgan Stanley.

A strong debut by a new company can justify to investors that its public peers
also deserve higher share prices. In the past year, however, shares of newly
public tech firms have wobbled. A number of closely watched tech IPOs are
trading below their IPO prices.

Gregory Becker, president and chief executive of SVB Financial Group, the
parent company of Silicon Valley Bank, which works with start-up tech
companies, said on a conference call Thursday that IPO markets could remain
weak for some time. Lower valuations for privately held tech companies could
instead drive M&A activity, he said.

There are now at least 146 private companies valued by venture firms at $1
billion or more, according to Dow Jones VentureSource. Bankers and investors
predict that only a minority of those companies would consider debuting this
year. Several mutual funds have been slashing the valuations of privately held
companies recently. “If I had a great company that didn’t need the capital but
could go public, this isn’t the time to take it out,” said Tripp Jones, a
general partner at the venture-capital firm August Capital.

Even as publicly traded tech companies have traded lower, investors in private
companies and executives worry that companies will struggle to match or exceed
their most recent private valuations. Yet late-stage private capital has been
drying up, which could push companies that need funding to go public.

“Companies are going to have to tap the public markets, because the
alternatives in the private markets are going to be punitively dilutive,” Mr.
Jones said.

Executives on recent corporate earnings calls have highlighted a slowdown in
tech spending due to concerns about the health of the global economy, which
adds to uneasiness, analysts said. Fears of slowing global growth shook
financial markets at the start of 2016, leading to a dropoff in business
spending.

The slowing of spending on tech isn’t necessarily going to last forever, said
Hari Srinivasan, research analyst for the Neuberger Berman Global Equity
Research Department.

“If the global environment doesn’t go through any shocks and continues to
recover slowly we could see tech spending come back in the second half of the
year,” he said.

The tech-heavy Nasdaq Composite fell 15% from the start of the year to Feb.
11, while the S&P 500 fell about 11% during that period. While both indexes
have bounced off their lows, the Nasdaq still remains in the red for 2016.
It’s a big reversal from past years. In 2015 the Nasdaq ended the year up
5.7%, while it rose 13% in 2014—outperforming the S&P 500.

Even with recent declines, the technology sector isn’t cheap, analysts say,
which makes it harder to justify scooping up shares. Technology companies in
the S&P 500 currently trade at an enterprise value—which includes debt and
equity—that is 11.6 times its past 12 months of earnings before interest, tax,
depreciation and amortization, according to FactSet. That is up from a year
earlier and well above the group’s 10-year average of 9.8 times.

