For a sector historically known for its fast-forward pace of innovation, consumer technology sure did a lot of backpedaling this year. From a report: The Nasdaq CTA Internet Index is in the red this year compared with a return of more than 27% for the S&P 500. Cathie Wood’s famed ARK Innovation ETF, more than 30% of which was invested in information technology as of Sept. 30, has seen its net asset value decline 21% this year, underperforming the S&P by nearly 49 percentage points. She isn’t alone. If you invested in enough tech stocks this year, you probably got burned by a few of them.
Select lowlights include fitness-equipment company Peloton Interactive, down nearly 75% this year; social-commerce company Poshmark, down almost 82%; and education-tech company Chegg, down 66%. At certain points, the number of names blowing up simultaneously was dizzying: Chegg, Peloton, Zillow Group and Vimeo all took nosedives around their most-recent earnings reports, collectively erasing some $26.3 billion in market value in a single week last month. A big part of the problem was the huge run logged in stay-at-home stocks in the latter half of last year. Many of tech’s 2020 darlings became duds simply by virtue of the fact that they appreciated too much too quickly. In the end, the numbers couldn’t keep pace.
Ms. Wood, at least, is sticking with the strategy that failed her this year. She said in a Bloomberg interview earlier this month that she expects it to yield “a compound annual rate of return of roughly 40% over the next five years,” emphasizing, “That’s a quadrupling.” But investors shouldn’t expect all of this year’s dips to lead to easy dunks next year. Zillow, for example, is down over 50% in the year to date, and while its future without iBuying looks to be a much more steadily profitable business, the online real-estate company is still worth more than twice as much today as it was in early 2019, when it went big into the automated home-flipping business. If the tech sector has to earn its gains next year, many of its stocks still face an uphill battle.