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Software Stocks Plunge as Investors Grow Wary of Valuations

Jeran Wittenstein

(Bloomberg) -- Shares of some of this year’s highest-flying software stocks tumbled Monday as investors re-evaluate this year’s rally in light of the premium valuations their rapid revenue growth commands.

Data-management software developer Alteryx Inc. plunged as much as 15%, while cybersecurity firm Crowdstrike Holdings Inc. sank 13%. They have been among 2019’s top performers, more than doubling since the start of the year. Both had revenue growth that exceeded 70% in the second quarter and trade at more than 20 times estimated sales, according to data compiled by Bloomberg. The average for the S&P 500 Software Index is about 7 times.

Enterprise-software companies have been among the standout gainers in the S&P 500 this year, as investors have been have been willing to pay higher prices for faster revenue expansion amid concerns about slowing global growth. They’ve also been helped by limited China exposure, which has increased their appeal amid the Sino-American trade war. Monday’s slump comes after the broader market retraced almost all of its August losses as trade and economic worries eased.

“Most of the names getting hit are high-multiple names that have had impressive run ups,” said Rishi Jaluria, a D.A. Davidson analyst. “This suggests some level of profit taking.”

Other notable decliners on Monday include:

Fastly Inc. -16%Slack Technologies Inc. -12%MongoDB Inc. -11%Pagerduty Inc. -11%Zoom Video Communications Inc. -9.6%Okta Inc. -11%Twilio Inc. -10%Coupa Software Inc. -11%Trade Desk Inc. -11%Shopify Inc. -7.8%

(Adds S&P 500 Software Index average multiple in second pargraph.)

To contact the reporter on this story: Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Richard Richtmyer

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