The first quarter of 2014 broke a number of records for tech funding and long-awaited IPOs, leaving many wondering if the good times were finally back.
But more recently a number of commentators have started describing a bubble climate, inflated by the astronomic amount of money being thrown at tech.
Just last week, Just Eat saw their share price rise almost 9% on the first day of trading. They were also the first company to list on the London Stock Exchange’s new High Growth Segment, giving a much needed boost to the Tech City UK led policy.
But, less than a week later, Just Eat is now trading below its list price.
Series of successful floats
Online retailers AO World and Boohoo also enjoyed equally spectacular starts to trading this quarter.
Boohoo saw a 70% surge in their initial share price and AO World saw theirs rise over 25%. But yesterday, along with tech stocks across the globe they both saw their shares close below their initial share price.
What comes up
It isn’t unusual for a stock to ‘pop’ when it lists; to rise on its launch and then slip back towards its original price as investors cash in on the rise.
These slips have fuelled concern about a possible bear market, a market where widespread pessimism causes the negative sentiment to quickly become a reality.
In other words, a market can sometimes talk itself into a dramatic decline.
As the financial world’s enthusiasm for the sector seems to wane, is the shine starting to come off tech?
Market correction
It wasn’t just new entrants to the market that saw a drop in share price this week.
In New York tech stocks suffered their biggest three-day drop since 2011. Amazon, Facebook, Twitter and LinkedIn all saw their shares fall earlier in the week and Nasdaq fell by 4%.
The fall in value of tech’s establishment might suggest that this is simply a small correction across the board.
Chris Woodcock, Tech City News Markets Columnist, believes it remains to be seen where these companies will end up in the market:
There is a big debate in the market at the moment as to why the sell off has been so fierce, and so specific to tech and biotech.
The market is a complex beast and only time will tell how severe the correction is going to be.
So, is the hype starting to falter when it comes to the tech sector?
When it floated, Just Eat was valued at over 100 times 2013 annual earnings, which to many in the financial world would seem absurd. Similarly, during their opening day of trading, Boohoo was valued at 266 times their earnings.
Chris Woodcock explains:
High earnings multiples are common amongst tech companies because of the high growth prospects. They represent the market’s best assessment of earnings not just today but in the future.
But Woodcock also highlights a new type of value.
However there is definitely value emerging already. Facebook, for example, is cheaper than it was a year ago. For high quality companies with more certain growth prospects, fund managers look ready to step in.
No one puts Just Eat in the corner
There is certainly a lot more money flowing around in the markets compared to a year ago.
European IPO volumes haven’t been this high since before the financial crisis. Companies raised €11.4 billion in the first quarter of this year, not far off the €12.3 billion raised in 2007 according to figures released by PwC.
Some would say it would be foolish to write off Just Eat at this early stage.
When Facebook floated in February 2012, their stock lost a quarter of their value but did eventually climb back to its initial levels.
Perhaps Just Eat seem a safe bet in comparison.