Nov 21 Investment Report

December 17, 2021
Investment Updates

To us, there are two sides to the current market. Firstly those companies that are exposed to increasing demand for their underlying products and services (where growth expectations have been low) and secondly those companies that have been subject to high growth, large market caps (relative to cash flow) and high expectations for growth and where the reality is starting to disappoint.

An example of a US stock in the second category, with a product that we still use more than ever is Zoom Video Communications. The stock is down -58% from its Feb-21 peak and still with a market cap of USD $55bn the FY22 PE has more than halved from 94x to 38x. Customer numbers, revenue and cash flow are all experiencing strong growth but the market price too rich for the realized growth. Other stocks like Zillow, DoorDash, Pinterest and Twitter are all well off their highs. Locally stocks in the sector have also come under pressure with Afterpay still having a market cap of $26bn despite falling from the mid $130’s to low $90’s since Square announced that it would acquire the company in an all scrip deal in August 2021.

The retracement in tech names coincides with a part-normalization of interest rates and with the Federal Reserve retiring the word transitory from its description of inflationary trends during the month, we imagine the trends in tech stocks form part of a cycle that has some way to run.

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