It is no secret that financial markets have been experiencing significant tumult in recent years. However, one of the hardest-hit sectors of late has been technology, causing more seasoned investors to have flashbacks to the late 1990s and early 2000s.
Just over two decades ago, countless internet and software companies were going public, and investors were quick to dive in under the guise that their returns would multiply rather quickly. To offer one example of just how “out there” some valuations were, now-defunct health website “Drkoop.com,” which preceded WebMD, raised $88.5 million in a June 1999 IPO. It closed its doors within less than two years. Ultimately, the broader list of companies that vanished after the dot-com bubble burst is extensive, and many of these companies were not only unprofitable, but not yet generating significant revenue.
Currently, technology stocks have experienced something similar: they have traded at lofty valuations, which many believe were far from justifiable. Along these lines, companies such as Twilio, which once traded at $450 per share in February 2021, now trades at a mere $45. Retail investor favorite, Palantir Technologies, now trades at $7 after reaching highs of approximately $45 just over a year and a half ago. Even companies such as Meta Platforms—formerly Facebook—now have market caps that are more than 75% less than their 2021 highs. Additionally, many pundits have shared that companies prioritizing unprofitable growth are now out of favor, resulting in even large-cap companies such as Uber beginning to adjust their focuses to profitability.
As valuations continue to fall and stock prices continue to decline, investors are turning their attention to bargain-hunting, while simultaneously assessing broader market conditions. It remains to be seen whether technology stocks—and the broader market—have further to fall. Regardless, one thing is for certain: multiples are returning to far more reasonable levels, and quality companies will continue to prevail during these uncertain times.