Airtasker’s co-founder and chief executive, Tim Fung, admits there may have been a bit too much enthusiasm from investors when his company debuted on the ASX, amid the COVID-19 pandemic.
“We had an extremely good first few days as a publicly listed company, where I think the share price tripled over a couple of days,” Mr Fung told ABC News.
Shortly after it started trading on the Australian stock exchange in late March, 2021, Airtasker’s share price peaked at $1.96.
But it has dropped by more than 60 per cent since then.
Other tech companies are in a similar boat. Most have experienced large peak-to-trough declines between 2020 and 2022, including Zip Co (-85 per cent), Appen (-82 per cent), Xero (-38 per cent), Altium (-36 per cent), Block (-31 per cent) and WiseTech Global (-31 per cent).
Tech falls on rate hike expectations
When COVID-19 first struck in early 2020, global markets plunged by more than 30 per cent in just several weeks.
To avoid a repeat of the Great Depression, central banks slashed interest rates to near zero (or less), and pumped trillions of dollars of extra cash into the world’s economy.
Many countries were able to snap out of recession very quickly. However, the side effect was that it jacked-up house prices, along with the value of shares and cryptocurrencies.
Flooded with cheap money, investors were emboldened to make big bets on companies that remotely stood a chance of becoming “the next big thing”.
In that climate, buy now, pay later (BNPL) firm Afterpay’s share price soared by more than 1,600 per cent, from their low point in 2020 (about $9) to their highest price ever (at $160).
Then, after it was bought out by US payments giant Block — which used to be called Square — Afterpay lost more than half its value. It sank to as low as $66.47 on January 19, its final trading day before being delisted.
In short, tech stocks have been some of the worst performers in recent times.
That is largely because the market is expecting the Reserve Bank — along with the US Federal Reserve and its foreign counterparts — to lift interest rates several times this year to contain hotter-than-expected inflation.
‘Not all of them will survive’
“Other options become much more attractive than tech stocks when interest rates start going up,” said Gemma Dale, director of investor behaviour at nabtrade.
“A lot of them are not making a profit yet, which means they’re running on borrowed money, which is going to cost them a lot more in a higher-interest-rate environment.”
Ms Dale says “there may be quite a bit more downside” for tech stocks over the coming months.
“I can’t see them roaring back. Not at this point time. It will be a long while before tech returns to its previous highs.”
Ms Dale is particularly pessimistic about the BNPL businesses, a group that includes Afterpay, Zip, Humm and Sezzle, among several others.
“Not all of them will survive. No business needs to offer five buy now, pay later options. If you’re not the biggest player, you’ll be at risk in a market like this.
Not all tech is suffering
Like many young tech companies, Airtasker has not made a profit yet.
But the company’s revenue grew by 37.5 per cent in the December quarter, and it recorded positive cash flow last year. So Mr Fung is not too worried about stimulus getting removed.
“I think there’s a reason tech companies are rated and valued highly — fast growth, typically high margins as well.
“I think the new environment — in which interest rates are going to go up — means that you need to have a real business that isn’t just reliant on raising tons of cash and raising capital constantly.”
Profitable tech companies have also been caught in the sell-off — but are faring considerably better. Computershare — which facilitates the transfer of shares when they’re bought and sold locally — is still trading near its record highs.
Even the US tech giants — which survived the tech wreck of 2000 — have fallen significantly, despite earning profits that beat investors’ sky-high expectations.
Apple, Microsoft and Google are only down 12-16 per cent, from peak to trough, in the past couple of months.
On February 4, Meta — Facebook’s parent company — crashed 26 per cent in a single day, losing $332 billion in market value. It also reported a rare decline in profit due to a sharp increase in expenses.
As well, it is forecasting revenue well below analysts’ expectations, while losing popularity.
Taking ‘long-term views’
While investors are pulling their money out of tech stocks listed on the ASX, Wall Street and other global exchanges, the private startup sector is a different story.
Earlier this year, venture capital fund Airtree Ventures was given $700 million — by superannuation funds and wealthy individuals — to invest in promising new businesses in return for a cut of their future success.
“We’re seeing tremendous opportunities around new platforms [such as] machine learning and artificial intelligence, and there are some interesting cryptocurrency and blockchain companies emerging,” said Airtree’s co-founder and managing partner Craig Blair.
Mr Blair’s fund was early investor of companies that have since grown to become unicorns.
They include graphic design platform Canva — now believed to be worth about $40 billion — and workplace software maker Employment Hero, thought to be worth around $1.25 billion.
“We’re taking long term views … we’re thinking 8 to 10 years ahead. And that’s best done in the private market where you can make mistakes,” Mr Blair said.