Photo: Jonathan Nackstrand Agence France-Presse
Most of the portfolio managers contacted by “The Duty” shall be understood to mean that Facebook and Twitter were significantly overvalued prior to the recent correction.
In a few hours, it was free fall for Facebook and Twitter, the collapse has inflicted losses of US $300 billion in the technology sector between the 25 and 31 July. However, this steep descent did not surprise the investors, who even believe that Facebook is in the process of imposing by its strength and to stop betting on a phenomenal growth, but fragile. Twitter does not convince as much.
In Montreal, the firm’s asset management Dam Capital has been severely hit by the fall in the share of Facebook, since this title is the most important part of the fund she manages. She had bought shares of the first social networking world a few months ago, when its value had gone down in the wake of the scandal over misuse of personal data by Cambridge Analytica.
Despite the recent dive of the giant californian, Patrick Thénière, an associate of Dam Capital, is not too much of a hassle. “It doesn’t change too much things for our customers,” he says. We choose securities for their potential on three, four or five years. In the short term, there may be twitching, and it hurts. But in the longer term, it is believed that there is still a lot of growth to come. “
Andre Chabot, the company’s investment management Triasima, believes that the correction of the last days is part of the normal course of things. “The technology sector was going exceedingly well for the past eight quarters, but it was too expensive, he commented. The market has returned to a recovery low and more attractive to buyers. “
“We believe that the recent correction has not broken the upward trend in the technologies. It’s going to continue to grow, ” he adds.
Most of the portfolio managers contacted by The have to agree that Facebook and Twitter were significantly overvalued prior to the recent correction.
“I think that Facebook and Alphabet now have market valuations are reasonable, while Twitter and Netflix are still too high,” says Paul Beattie, associate at BT Global, a firm that manages a hedge fund and advises clients in their investments.
“When the numbers become too great, companies can no longer sustain growth,” says Paul Beattie. Soon, Facebook will no longer be able to increase its number of users, and it will then become impossible for it to inflate its value, through to rapid growth. “At a time, this will stop, agrees Paul Beattie. Facebook has managed to become huge and powerful. All companies in the sector will ultimately have to offer their shareholders a solid value. “
When the numbers become too great, businesses are not able to support the growth
— Paul Beattie
“At BT Global, we want to just make a transition to actions that hold a solid value, rather than betting on growth,” he says.
For most publicly traded companies, the quarterly results, Facebook announced on the 25th of July would have caused the runaway of investors. The giant blue announced a profit increase of 31 % and a turnover swelled by 42% compared to the previous year. Same thing for Twitter, on the eve of his downfall, which released on July 27, a record-high profit of US $100 million. It was the third consecutive quarter with a profit for the company, after more than ten years of losses.
But, the downside, the increase in the number of users on these networks was not enough for the shareholders. In Facebook, the quarterly growth in the number of users slows down, and amounted to 1.54 %, compared to 3,14 % in the first quarter. The network claims to 2.23 billion users, and even $ 2.5 billion in cash as Instagram, WhatsApp and Messenger. However, in the West, their number is stagnating (United States) or decreases (Europe).
How to explain so great a susceptibility of the shareholders ? “Technology is a particular sector, since this is where the people have made in the past few years,” commented in a personal capacity Mireille Rondy, branch manager at securities Peak. “Facebook is enormously popular, so much so that the margin of error is virtually non-existent, says Philippe Hynes Tone Capital. The company can’t afford to disappoint the expectations. “
Patrick Thénière Dam Capital noted that it is mainly the forecasts of the direction of Facebook that have cooled down the market. In a conference call after the announcement of its results last week, the management proposed a sales growth of 35 % for the third quarter, and 28 % for the fourth, compared to 42 % currently.
These figures, when they are multiplied by the enormous size of the california-based company, are still very interesting, according to Mr. Thénière.
Is this a dive like any other in the Russian hill, or the end of the ride ? “The Award itself is emotional,” says Mireille Rondy. The market to get an idea. We know that we are on the eve of a stock market decline. Is this going to be this year, or next year ? We don’t know yet. “
Caution in large-scale investors
Large institutional investors, for their part, participate with caution in the Internet sector. The firm’s investment management Jarislowsky Fraser indicates that it does not hold securities of Facebook and Twitter because they ” do not meet [its] strict criteria of investment “.
The Caisse de dépôt et placement du Québec has, in turn, that very few shares of Facebook and Twitter in comparison to its total investments, which amounted to nearly $ 300 billion. As of December 31, the Fund owned the equivalent of 86 million in Facebook, and 3 million in Twitter. The focus is more on the tech giants who sell material products, such as Microsoft, Apple or Amazon. The Fund also holds shares of Alphabet (Google it), which, in spite of its being entirely virtual, deserves his trust.