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Companies That Rode Pandemic Boom Get a Reality Check

Investors, who flocked to companies like Zoom as the virus spread, have started to look elsewhere.

While the pandemic battered the economy, tech companies and consumer companies powered by digital technology stood out as islands of growth.

But with coronavirus cases and deaths falling, more than two million Americans a day getting vaccinations and the overall economic outlook improving, investors are starting to turn elsewhere.

In the past month, the shares of smaller Covid tech darlings have fallen sharply — Zoom off 22 percent and Peloton 24 percent. Zoom’s price is down nearly 50 percent from its all-time high, reached in October. The largest tech companies have dropped less, but even they haven’t been immune to the changing mood. Apple, for example, has lost 11 percent in the last month.

The real turning point goes back to Nov. 9, said David Readerman, a hedge fund portfolio manager. That was when Pfizer became the first company to announce a highly effective Covid-19 vaccine. Pfizer’s chief executive, Dr. Albert Bourla, called it “a great day for science and humanity.”

That announcement, Mr. Readerman said, “was the start of what we’re seeing now — visibility on reopening and economic recovery.”

Analysts say investor focus has turned a little more toward old-economy sectors like energy, banking, hotels and airlines. Since Nov. 6, the Friday before Pfizer’s vaccine announcement, shares of the major airlines — Delta, United and American — have climbed more than 50 percent.

The bond market is also weighing on tech stocks. Yields are rising as investors expect that a recovery will bring inflation and higher interest rates. So they are selling bonds and tech stocks and buying shares of the old-line companies likely to benefit most during an economic upswing.

Tech companies may grow more slowly in a post-pandemic economy, but they remain strong.

Over all, the performance of the tech sector is still extraordinary. The shares of Apple, Amazon, Microsoft, Alphabet (Google’s parent company) and Facebook are up between 50 percent and more than 70 percent over the past year. Apple now has a market value of more than $2 trillion.

Despite the recent decline, the same is true for companies whose products and services were suddenly in great demand for video conferencing (like Zoom), home exercising (Peloton) and takeout meal delivery (Grubhub and DoorDash). Zoom shares have tripled in the past year, while Peloton is up fivefold.

A central question for the tech companies — and their investment outlook — is how much the coronavirus year has permanently changed work and consumption patterns.

Once pandemic fears are gone, will people largely return to working in offices but have more flexibility, perhaps working from home a day or two a week? Or will there be a more fundamental shift in the geography of employment, with workers in coastal cities like San Francisco and New York dispersing to “Zoom towns” for lower housing costs and less traffic?

Will the online shopping and entertainment habits forged in confinement continue to accelerate the trends toward e-commerce and video streaming?

No one knows for sure, but the view of Bay Area technologists and investors, not surprisingly, leans toward a long-term Covid bump for tech companies.

At the end of last week Coursera, the digital learning network, filed the documents necessary to go public in the coming weeks. The company and its venture backers are convinced that adult education and skills training will increasingly be online, and that investors will agree. In its filing, Coursera reported that its revenue jumped 59 percent last year, to $294 million.

So far, there is little evidence of a retreat from online life in general.

“The market is giving us an opportunity to increase our conviction,” he said, chuckling.

Nvidia shares are up about 8 percent from the Monday close.

Category: Technology

Source: New York Times

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