“I’m particularly pleased to see China do so well,” said Mirkazemi.
“We have certainly broken through a barrier that has kept us at bay for so many years.”
His stake in the company soared past the $300 million as shares rose 20 per cent on Tuesday, valuing the group at more than $4 billion.
The contrasting message from Wisetech’s billionaire founder, Richard White, was a familiar one from tech companies over the years who have struggled with investors over growth versus earnings: “This is a growth company, we are revenue driven.
“We want to grow the market and become the operating system of the global logistics (industry) and you can’t get there by profit, you’ve got to get there by growth,” he told the Sydney Morning Herald and The Age as its shares sank.
It sums up the conundrum for tech investors. These company’s may perform brilliantly but sky high valuations mean there is little room for anything other than perfection.
Altium, one of the more obscure members of the main tech pack, managed to attain this perfection on Tuesday.
The company makes the software tech tool kits that help design circuit boards that are being embedded in any electrical product imaginable, including household goods like fridges and air conditioners, to connect them to our digital world.
The company reported a 24 per cent rise in revenue to $US78.1 million, and a 58 per cent increase in net profit to $US23.4 million.
More importantly it continued to raise its guidance. Profit margins are expected to rise and Altium unveiled a new revenue target of $500 million by 2025 with China expected to be a driving force.
WiseTech’s results the following day were very strong too.
WiseTech, which aims to envelope the global logistics industry with its software ecosystem, reported a 68 per cent lift in total revenue to $156.7 million compared to the prior first half, and a 48 per cent lift in net profit to $23.1 million and reiterated its guidance for the full year.
It was another stellar result, but after a 40 per cent rise in its share price over the previous six weeks, the market was clearly expecting more. The stock dived as much as 14 per cent on the day, and the fall continued over the following days.
As if that wasn’t enough, as WiseTech tumbled share of Afterpay — the pay by instalment provider taking the market by storm — staged a 10 per cent plunge for reasons that have yet to be explained, but has been linked to a potential leak of a Senate report into the buy now, pay later sector due to be released on Friday.
Afterpay rivals Zip Co and Splitit also experienced share losses over the following days despite the fact the two companies are not expected to be impacted by the report.
For tech investors it is just another day learning to live with the volatility of stocks that are priced on metrics that have not been sighted since the dot com boom/bust.
Not that this is an issue for some major tech investors who support White’s growth mantra.
“There’s a lot of merit to that,” says Cyan Investment management portfolio manager Dean Fergie which has investments in Afterpay and Splitit.
He says when you look at benchmark stocks from the US like Amazon, Facebook, and Google, “they were unprofitable for years until they got a strong market share, now they’re behemoths in the sector”.
He says the traditional valuations methods are hard to apply to businesses as “extremely scalable” as tech companies which can operate globally.
This potential scale means “they have always got extremely high valuations because the trajectory of earnings is so large and any small deviation in that trajectory of earnings will have a large impact”.
“As sentiment and results swing even marginally, the view of the current valuation of these stocks can swing aggressively,” he says.
Ben Clark, a portfolio manager with WiseTech investor TMS Capital, says the high earnings multiples create more volatility in both directions.
He says with Altium there was a clear beat of expectations.
The clear message from both investors is that you need to make a long-term judgement and not get too caught up in the short-term stock price movements.
“With both of these stocks you need to be talking five years out,” says Clark. “You have to be able to sit through the volatility.”
With the release of the Senate report, the fun is expected to continue for Afterpay investors next week as the shares react to any further regulatory burden on the sector. Afterpay has thrived in an environment where it has not been burdened with the need to conduct credit checks on its customers. This is because, technically, it is not providing its customers with credit, they are paying by instalment.
Afterpay is also releasing its half-year results on Wednesday. According to Bloomberg data, the $4 billion company is currently trading on a valuation of 32 times its sales.
Language translation specialist Appen will also face high expectations when it reports on Monday. The company’s shares hit a record high this week as it got caught in the giddy backdraft of Altium’s results.
Appen, which is worth $2 billion, has not updated its guidance since last November when it told investors to expect full-year earnings before interest, tax, depreciation and amortisation (EBITDA) to be between $62 million and $65 million.
The stock has risen 80 per cent since November.
It leaves a lot of room for disappointment, and possibly another lesson for tech investors on how to live with volatility.
No that it is easy.
“I don’t know if you ever get used to it,” says Fergie.
Colin Kruger is a business reporter. He joined the Sydney Morning Herald in 1999 as its technology editor. Other roles have included the Herald’s deputy business editor and online business editor.