Fintech Investments

Tech Momentum Looks Shaky

LinkedIn’s dismal guidance set the stage for a massive selloff in tech stocks on Friday. But there are other clouds gathering on the horizon for momentum-propelled stocks — and not just social media companies.

LinkedIn is making everyone in the Internet space jittery after a woeful Friday (Feb. 5).

The Nasdaq is down 2.4 percent as of this writing, with the Internet sector down more — and, in terms of individual names, much more. The culprit, of course, is LinkedIn, down a staggering 44 percent on that day alone, with a guidance beat ignored in favor of poor guidance, which has lured investors to the exits.

LinkedIn’s most damning statement comes with the disclosure that the corporate hiring solutions business will be beset by slower growth in 2016 — and, no surprise, slowing economies are to blame. With just 7 percent growth in the latest quarter, as measured by unique visitors, this speaks to at least some company-specific pressures. More secular concerns linger as well, with ad display sales down year over year.

It is the ad sales and the anemic visitor growth that has spooked other names in the sector, with ad sales likely having an outsized effect on the sector, as ad sales are oxygen for any media company, social or otherwise.

LinkedIn threw another bit of kindling on the fire when it said that its corporate hiring solutions operations would be marked by slower growth this year, tied to macroissues. That could presage a slowdown in hiring.

As Tableau Software slumped 49 percent on soft guidance, making its money in the data analytics space, we should also see at least some glimmers of concern in the Big Data industry. If corporate earnings are being dragged down a bit from macropressures and international exposure, then IT spending may stall, at least among smaller firms. Tableau said it is looking for revenues this year of $830 million to $850 million, which is down from previous guidance of $845 million to $865 million. The company said that it has seen a slowdown in spending, particularly in North America. Even within organizations where the company does business, spending is slowing.

Names that did well during earnings season, such as Facebook, got shellacked, which shows that investors have short memories.

Now, the stage is set for a very pressured set of big names to produce results: Twitter is on deck and is trading around lows it has not previously seen in all of its relatively short life as a public entity.

The bloodbath extended to names that are on deck to report earnings in the next few weeks, with a number of them down significantly more than the market. That roster includes Lending Club (down more than 8 percent) and Shopify (off around 6 percent), as was Expedia. In Big Data, fellow names tied to the sector had truly horrific showings, as Hortonworks slid 17 percent and Splunk was down 23 percent on the day. PayPal, which reported at the end of last month, had strong results, an earnings beat and shares gathered steam only to fall back again, a path similarly seen in MasterCard shares.

None of this bodes well for the tech sector in general, because it is likely that the economic news will get worse, at least coming from beyond the United States. That speaks a bit to the contagion that will likely come sooner rather than later; after all, U.S. firms are unlikely to invest in technology if they do not see growth ahead for the top line. The Tableau results are a hint of this trend. Be wary, momentum investors, as the momentum slows.

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