- Pandemic star stocks Fastly, Square and Zoom were all pressured during this week's sell-off.
- Not all technology companies suffered, though.
Some technology stocks that have staged big gains because of the coronavirus pandemic got a little less expensive this week.
The wider markets declined, with the S&P 500 ending the week 5.6% lower, as virus case numbers shot up again, causing lockdowns in France and Germany. Usually new virus concerns would benefit the companies in what's come to be known as the "work-from-home" basket.
Not this time, for a variety of reasons.
Fastly. Fastly, whose content-distribution network enables apps to load quickly, declined 17% this week. Two weeks ago the company warned that third-quarter revenue would be lower than it had previously predicted. The actual results, delivered on Wednesday, still disappointed investors. Revenue was within the range of the recent forecast, but the company called for a fourth-quarter loss that was wider than analysts had expected.
Fastly's largest customer has been TikTok, the video-sharing app owned by China's ByteDance that found itself in the middle of the U.S.-China trade war. Oracle agreed to provide cloud services to support TikTok, and on Wednesday Fastly CEO Joshua Bixby wrote in a letter to shareholders that TikTok had removed most traffic from Fastly's network.
"Based on publicly available information, we believe this global traffic reduction was in response to the potential of a prohibition of U.S. companies being able to work with this customer," Bixby wrote. "This clearly impacted Q3, and based on the continued turbulence of the situation, we anticipate the traffic reduction to continue into Q4, as reflected in our guidance."
Even with the TikTok impact, Fastly stock is still up more than 200% since the beginning of the year.
Twilio. Cloud communications software company Twilio, whose technology is embedded in online shopping service Instacart, was similarly pressured this week after it called for a fourth-quarter adjusted loss when analysts were expecting a profit. Twilio stock fell almost 9% this week but is up 184% for the year.
AMD. For years the story of AMD has been clear. It was taking on Intel in general purpose chips and was recently making progress as Intel stumbled. It was also competing with Nvidia in graphics hardware. It had not made a lot of acquisitions but mostly grew organically.
Then, on Tuesday, the story changed as AMD announced the $35 billion acquisition of Xilinx, a company with customizable chips known as field-programmable gate arrays. An analyst at Wedbush Securities who has the equivalent of a buy rating on AMD stock called the deal "a mixed bag" because of how much AMD offered. AMD stock went down 8% this week, although for the year it's up about 63%.
Shopify. Shopify has given small businesses an easy way to keep selling during the pandemic this year, and on Thursday the company showed a faster pace of revenue growth for the second consecutive quarter, handily beating estimates. The shares fell anyway on Friday. The stock is down around 10% for the week but remains up 133% on the year.
Square. Digital payments company Square's stock moved nearly 9% lower on Friday, bringing the week's downward move to 12%, after The Wall Street Journal said it's considering buying Credit Karma's tax preparation business. Intuit has not yet closed the $7.1 billion acquisition of Credit Karma that it announced in February. Even with the selling, Square stock remains up about 148% in 2020.
Zoom. Zoom Video Communications has arguably been the biggest winner of Covid-19, as it became a consumer go-to for all sorts of online meetings instead of just the enterprise-oriented collaboration enabler that it was designed to be. But as investors sought to rotate out of cloud names, that hit Zoom, too. This week the stock fell 11%. It's still up 577% for the year. (Many of the previously named companies trade alongside Zoom in exchange-traded funds such as the WisdomTree Cloud Computing Fund, whose biggest holding is Zoom.)
The "big five" technology companies also pulled back this week, although less than 10%, despite reporting more profit and revenue than expected. Sectors with dividend yields above 2.5%, including consumer staples and utilities, did better than Amazon, Apple, Facebook and Microsoft.
The trend wasn't universal, though. A few 2020 high-flyers did go even higher this week after issuing better-than-expected earnings reports. They include contact center software company Five9, social network Pinterest and customer-service software Zendesk.