Tech Stocks Rally – Are we nearing a Halt and Sell-off?

  • Jun 06, 2020 AEST
  • Team Kalkine
Tech Stocks Rally – Are we nearing a Halt and Sell-off?

Summary

  • COVID-19 has led to a significant change with work from home, cashless transactions, and e-learning becoming the new normal.
  • Technology has played a pivotal role by offering services such as enhanced security, online business meeting platforms, and online education services, among others.
  • The sector has been one of the best performers post the March 2020 sell-off. However, the sector has witnessed a decline over the past week.
  • Appen witnessed a decline in its stock price primarily due to the sale of shares by substantial holders; a rating downgrade from a major brokerage firm took its toll on Altium.

With enduring sadness as the world has been in chaos, had it not been for progressive technology services, we would have been looking at an uncontrollable crisis.

The last couple of months have seen a surge in demand for technology, ranging from e-learning applications to digital payment technologies. COVID-19-induced lockdowns and implementation of social distancing measures have compelled the individuals to work from home and go for cashless transactions, among several measures to maintain appropriate physical distance and curb the spread of the virus. Increased focus on cashless transactions has been a boon for BNPL players.

Technology has played a significant role in this, and several technology stocks have performed substantially well with an increase in customer base leading to a considerable increase in the top-line. However, they have ended with a difficult week with ups and downs in their stock respective share price.

GOOD READ: Technology has changed the way we work amid the COVID-19 crisis: A look at in-demand technologies

Let us shed some light on a few ASX-listed tech stocks that have been on a high but took a tumble, albeit a slight one, in the last few days.

Altium Limited (ASX:ALU)

Software company Altium is engaged in developing embedded systems and electronic designs systems. ALU’s key products include Altium 365®, Altium NEXUS®, and ActiveRoute®, among others.

Business and Market Update

On 12 May 2020, ALU released an announcement highlighting that it remains profitable and financially healthy with a robust balance sheet and more than US$77 million of cash.

The Company boosted its transactional sales capacity with the introduction of its new digital online sales capability. The model is expected to take some time to ramp up fully but shall play a support role in reaching the 100,000-subscriber target by 2025.

Though the Company is positioned well in the present market situation, it expects some headwinds on its performance in May and June, driven by extended lockdown restrictions, SMEs cash management priorities, as well as the consequential economic and social impacts of COVID-19 on the key economies including the US and Western Europe countries.

FY20 Guidance Withdrawal

Altium stated its strong operational and market position on 8 April 2020. However, it withdrew its earnings guidance for FY2020 due to uncertainty arising from COVID-19.

1H FY20 Results

During the first half ending 31 December 2019, ALU witnessed a growth of 19% in new Altium Designer seats and an upsurge of 16% in subscriber base to 46,693 subscribers.

The first half of FY20 was closed with a strong balance sheet, zero debt position and an increase in cash and cash equivalents to US$80.7 million.

 

Source: Company announcement

Source: Company announcement

At the close of the trading session on 5 June 2020, stock of ALU settled at AU$34.900 per share, indicating a decline of 4.252% against its previous closing price. The decline could be attributed to a rating downgrade by the brokerage firm, Bell Potter.

Appen Limited (ASX:APX)

Appen Limited is engaged in the provision of training content for artificial intelligence development.

On 4 June 2020, the Company witnessed the sale of shares on 4 June 2020 by the Company’s substantial holders putting the stock in red. Details are as follows:

Chris Vonwiller, Non-Executive Chairman, earned AU$ 58 million by selling his 2 million shares at a price of AU$29 per share, primarily due to various personal reasons, such as philanthropic endeavours. However, he still holds 9 million shares and remains one of the largest shareholders of Appen.

Mark Brayan, CEO/ MD, sold 95,535 shares and earned AU$2.9 million by selling off his share at the price of AU$30.60 a share, to diversify his personal investments and satisfy his tax obligations. Also, Bill Pulver, Non- Executive Director, earned AU$8.4 million by selling his 275,000 shares at AU$30.6865 a share.

On 29 May 2020, Appen released its AGM presentation and appraised its strong performance at the end of 31 December 2019, supported by strong organic growth. For FY2019 (ended 31 December 2019), Appen reported revenue of AU$536 million, up by 47% y-o-y, whereas the organic revenue grew by 37%. The Company has a strong track record of high revenue and earnings growth. It has a broad and deep technology suite that opens the market as well as improves scalability.  

 

 Source: APX’s report

 Source: APX’s report

Outlook:

  • Continual investments in technology, diversification, and expansion in customer base, to enhance its position in the high-growth market.
  • A Negligible scope of pandemic impact was noted based on the availability of the current data with the Company.
  • YTD revenue plus orders in hand for delivery in the full year of 2020 recorded as ~AU$350 million in May 2020. And underlying EBITDA for the full year ending 31 December 2020 is in line with the last guidance and expected in the range of AU$125 million to AU$130 million.

 

On 5 June 2020, APX stock settled at AU$29.080, down by 4.593% from the previous close. The decline was primarily due to the selling of stake by the senior executives.

Do Read: Investors Like Technology Disruptors on ASX: ALU and APX

Xero Limited (ASX:XRO)

Xero operates as a provider of exquisite and easy to use cloud-based accounting software solutions for small and medium businesses and their advisors worldwide.

On 4 June 2020, XRO announced that the initial impact of COVID-19 on NZ small business sector has revealed that investment and swift payments for small business will enhance the confidence. The revenue for small businesses witnessed a decline of 10% in March and 34% in April y-o-y.

APT, on 4 June, collaborated with the software-as-a-service platform Coveo to strengthen the app marketplace for small business to search the appropriate as per the client’s requirements.

The Company also announced on 2 June 2020 that it had released an additional search functionality on its app marketplace. APT also launched tax and compliance tools.

On 14 May 2020, reported FY’20 results for the year ending 31 March 2020 while delivering a top-line growth with robust free cash flow and net profit outcome.

  • Reported operating revenues of NZ$718.2 million, an increase of 30% y-o-y.
  • EBITDA stood at NZ$137.7 million, an increase of 88% y-o-y.
  • Reported a 26% increase in the total subscribers to 2,285,000.
  • Increase of 29% in the Annualised Monthly Recurring Revenue (AMRR) to NZ$ 820.6 million.
  • Net profit improved NZ$3.3 million.

 

By the market closure on 05 June 2020, XRO shares closed at AU$87.420, down 2.193% from the previous close.

Did you read; What’s latest with these 3 Fintech Stocks - XRO, Z1P, OPY

Afterpay Touch Group (ASX:APT)

Afterpay Touch Group is a technology-driven buy now, receive now, pay later Company that operates in the US. The Company operates through Afterpay and Pay Now (Touch) services and businesses.

APT is growing aggressively in the US market and crossed 5 million active customers in the US market.

The Group, on 21 May 2020, reported robust business performance during Q3’20, the Company crossed 5 million active customers in the US, while ~9 million people joined the platform. The US market performance stayed robust in the quarter regardless of the seasonally weaker retail market.

On 1 May 2020, Tencent bought a 5% stake in APT. This agreement would aid to soothe selling pressure that the Company has faced since Visa disclosure plans to enter its core market.

On 14 April 2020, reported business update in response to the pandemic for the Q3’20, along with the response plan. Key highlights include:

  • Reported underlying revenue at AU$7.3 billion, an increase of 105 per cent y-o-y; also announced that the growth rate was in line with H1’20 as compared to H1’19.
  • Reported the three months underlying revenues increased by 97%q-o-q.
  • Total cash reported of AU$541.1, million which includes AU$515.0 million cash and AU$26.0million restricted cash with total liquidity of AU$719.2 million.
  • Debt facilities accounted for AU$355.7million in the balance sheet.

 

 

By the market closure on 5 June 2020, APT shares closed at AU$50.610, down 3.046% from the previous close.

 


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