Wall Street stock indices have been falling sharply in recent months: the index NASDAQ Which is associated with technology stocks, has fallen more than 20% since the beginning of the year, andS&P500 Has already dropped by almost 13%. This is a dramatic change compared to the euphoria that gripped stock markets almost throughout the corona crisis, which we now seem to be witnessing.
As the entire market declines, so do Israeli stocks traded on Wall Street, and even sharply. In fact, all Israeli technology companies issued in 2021 are currently traded below the issue price. What does this mean for these companies and for investors and workers, what is the outlook for 2022 and what other macroeconomic factors may affect the economy in Israel and the world in the coming months? Here are questions and answers.
Which Israeli companies traded on Wall Street have decreased in value in the past year?
Stock Global-E , Which provides cross-border e-commerce technology solutions and was issued in 2021, dropped back to the price it first issued 11 months ago (down 16% in trading week) on Friday. Other stocks had previously erased the gains they had recorded from their issues. Culture For example, which provides video solutions, has lost 85% since the IPO, which translates to more than $ 1 billion of value. Risked , Which deals with the prevention of credit fraud, has lost almost 75%, which is $ 2 billion. Even companies that did not fall below the issue price, nevertheless fell compared to the peak at which they traded. One such company is Global Island, which has lost 70% andSentinel One Which lost around 60% of a campaign. This is a loss of value of billions of dollars each.
Some of these companies are the so-called “growth group”: they show rapid growth in their revenues and grow in market shares, but they are not always profitable, even the opposite. Last year, investors preferred to see unprofitable companies because for them this was an indication that the company was investing in its future. But later, as they began to fear interest rate hikes, investors preferred to turn to investments in more traditional sectors and profitable companies, even if not very emerging.
What about companies that have entered the market through SPAC – that is, through other companies that have merged into content?
These companies have suffered from negative momentum almost from the beginning. There were very many companies that were merged into spikes that in retrospect received too high a value or came to market too soon. That is why investors “punished” the companies that came to the stock market through a merger with Spock even before declines in the technology market in general began. Some companies from Israel have merged into Spak and lost over 80%, for example the AutoTech companies REE andAutonomous .
How can the declines we are seeing now be explained?
A major explanation lies in the fact that times have changed, compared to the peak of the corona crisis. A few months after the outbreak of the crisis, a very good period began for technology companies. There has been a great acceleration in the transition to digital in all areas of life due to the need for social distance following the epidemic, and there has been a demand for products from various technology companies, from e-commerce solutions to cyber security. The shares rose significantly and at the same time there were a lot of issues and mergers of technology companies for Spacks. The new shares from Israel issued in 2021 also rose to beautiful highs. Towards the middle of last year, however, the trend changed: on the one hand, a return to a certain routine began, and on the other hand, macroeconomic concerns of inflation and interest rate increases. This has led to a decline in technology stocks.
Is there still an IPO of an Israeli company on Wall Street from the past year that actually succeeded?
The only issue that left Israel in 2021 and recorded a positive return is Zim , A maritime transport company that enjoys very positive trends in its market. Since the offering is admittedly with a positive return of 250%, it is less than the peak.
The companies are currently traded below the issue price. Does it matter to them?
On the part of the companies, they acted right when they raised money from investors when they could. The fact that they have cash on hand, gives them flexibility and the ability to make purchases. On the other hand, when the value of companies decreases, there is a fear that they will become a target for acquisition by companies or other parties. Of course, those who invested in companies suffered losses.
And there is also the issue of options. In companies whose shares have fallen sharply in the past year, the benefit value of the options has shrunk. For example employees Weeks andLemonade We currently have options that embody a benefit of tens of millions of dollars, compared to hundreds of millions a year ago. If the trend continues, it may make it harder for companies to recruit new employees later on.
Are we today witnessing a scenario similar to the days of the bursting of the dot.com bubble of the early 2000s?
At the moment it does not look like that. In the early 2000s there was a collapse of the entire technology sector because investor expectations were very far from the pace of technology development at that time. Today, expectations are based first and foremost on the ability of companies to grow in line with the profitability of existing products and services. So companies that continue to grow fast their stocks will be much less affected than companies whose growth rate will fall dramatically because of the changes in consumer tastes.
What is the outlook for the markets looking ahead?
2022 will continue to be volatile in the market, and the big question is whether economies will fall into recession as a result of central bank interest rate hikes, or we will only see a moderation in growth. Also, there will likely be fewer recruitments and lower values. Companies that consume less cash will probably wait for better times, but those that burn cash and need more money to survive, will have to do so at all costs.