Internet retailers and computing giants see shares fall as fears over growth stocks infect the City
The dotcom bubble burst in 2000 Photo: BARCROFT MEDIA
Fears that a second dotcom bubble is about to burst triggered a global
sell-off of technology shares on Monday, with the values of internet
companies on both sides of the Atlantic falling.
Online retailers and technology hardware makers lost billions off their stock
market values as fears of overblown expectations in America spread to
Britain and Asia. Wall Street traders, who have pushed internet companies’
shares up to highs not seen since the peak of the dotcom bubble at the turn
of the century, have fretted that their growth prospects do not justify
their exuberant valuations.
On Monday, stocks in Facebook and Twitter followed falls seen by British
technology and internet companies. Shares in Asos, the Aim-listed internet
fashion retailer, lost as much as 9.3pc while the grocery delivery business
Ocado, the Cambridge-based microchip designer ARM Holdings, and the online
estate agent Rightmove all saw substanial declines. Ocado fell 6.7pc,
Rightmove 3.1pc, and ARM Holdings 2.4pc.
The losses weighed on the wider market, with the FTSE 100 off 1.1pc, its
biggest one-day fall for a month, and the FTSE 250 down 1pc.
Fears have been brewing amid feverish demand for technology flotations in
recent months, with values often reliant on predictions of seismic growth
rather than underlying business fundamentals. AO.com, the online white goods
retailer, ended its first day with a market capitalisation more than 200
times its annual profits, while the internet takeaway business Just Eat and
fashion website Boohoo.com have also attracted lofty prices.
In New York, the social network Twitter has seen valuations of as much as
$40bn despite not predicting a profit until 2016. Shares in Facebook, the
internet video company Netflix and the electric car manufacturer Tesla also
soared last year. However, the four companies have lost between 15pc and
25pc of their values in the last month amid fears their growth predictions
are overblown.
“In the technology sector, we have seen the valuation gap between high-growth and low-growth stocks widening over the last three or four years,” said Pierre Ferragu, an analyst at Bernstein. “This gap has been at all time highs and that sort of correction was due at some point.”
Earlier this year, New York’s technology-heavy Nasdaq index rose to its highest level since the dotcom bubble burst in mid-2000. At the time, hundreds of companies’ valuations plunged and others went bankrupt as the funding they had relied on dried up.
Poor sets of corporate results in recent months have put the brakes on growth predictions, said Ian Williams, a strategist at Peel Hunt.
“If you look at the bottom-up news it’s been pretty ropey really. Almost every month there’s been two or three of the main companies delivering negative earnings news and contract delays. It’s quite surprising that it’s held up as well as it has done,” he said.
“In the technology sector, we have seen the valuation gap between high-growth and low-growth stocks widening over the last three or four years,” said Pierre Ferragu, an analyst at Bernstein. “This gap has been at all time highs and that sort of correction was due at some point.”
Earlier this year, New York’s technology-heavy Nasdaq index rose to its highest level since the dotcom bubble burst in mid-2000. At the time, hundreds of companies’ valuations plunged and others went bankrupt as the funding they had relied on dried up.
Poor sets of corporate results in recent months have put the brakes on growth predictions, said Ian Williams, a strategist at Peel Hunt.
“If you look at the bottom-up news it’s been pretty ropey really. Almost every month there’s been two or three of the main companies delivering negative earnings news and contract delays. It’s quite surprising that it’s held up as well as it has done,” he said.
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