After the technology sector fell by 5.88% in the week, investors are not kind to firms that post losses.
Cloudflare (NET) and Twilio (TWLO) are two companies that disappointed shareholders after posting
quarterly results. NET stock lost 18.4% on Nov. 4 while TWLO stock declined by 34.6%.
What happened?
Cloudflare, a content delivery network, earned six cents a share on revenue growing by 47% Y/Y to
$253.9 million. It even raised its forecast. On its conference call, CEO Matthew Prince cited macro
headwinds for weak results.
The sell-off in NET stock is a warning for SAAS high-fliers of the past. For example, Datadog (DDOG),
MongoDB (MDB), Crowdstrike (CRWD), and Okta trade at high price-to-sales multiples. Those stocks
could trend lower as the bear market continues.
Twilio, a communications provider on the cloud posted a 27-cent loss. Revenue grew by 32.8% Y/Y to
$983 million. In a frothy market, speculators rewarded companies that posted revenue growth despite
losing money. Today, the dollar-based net expansion rate of 122% in Q3, down from 131% last year, is
not enough.
Twilio expects revenue of $995M to $1005M, below consensus. The forecast is not far from expectations.
Still, it did not prevent the firm from losing over one-third of its value.
Be wary of over-priced tech stocks.
