When “Story Stocks” Crash Like this, the Market is Kaput
Reality suddenly mucks up the rosy scenario.
Many of our heroic “story stocks” are getting totally destroyed. Yet not much has changed: Their business model, if any, is the same; they’re still losing money hand over fist; and they’re still trotting out the same custom-designed metrics that seduced analysts and the media once upon a time. But it’s not working anymore.
After the drubbing on Wednesday – the Nasdaq plunged 3.4% and is down 13.5% from its high – we know one thing for sure: there will be a rally someday that lasts longer than a few hours. But something big has changed.
There was the old guard of new tech. Netflix plummeted 8.6% on Wednesday and is down about 20% from its 52-week high. Apple dropped 2.6% and is down 28% from its 52-week high. Facebook lost 3.9% and is 14% off its 52-week high. The list goes on.
But the real drubbing was reserved for the new darlings, the fruits of the recent IPO boom, and other “story stocks”:
Etsy dropped 4.9% for the day to a new low of $6.99. After its IPO at $16 in April last year, it spiked to $35.74 and has gotten whacked down 80% since. Twitter plunged 4.8% to a new low of $18.68. After its IPO at $26, it spiked to $78, from which it has now plunged 76%. Shopify plunged 10% during the day and is down 48% from its high in June.
Mobileye, which makes software for camera-based systems and sensors for (self-driving) cars, plunged 10.3% for the day, and 47% from its 52 week high. And yet, self-driving car tech is one of the hottest, most hyped wonders of the day.
Oh, and GoPro! In after-hours trading, shares plunged 25% to $11 a share. But it’s an exception among our IPO heroes: it has actual profits and a real P/E ratio! And it has a real business model, even if it resembles a one-trick pony that’s getting tired.
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