Tech Stocks Crumble As The Market Demands What They Can’t Deliver

It’s a nasty day for technology companies in the public markets, as aging giants like AOL are falling right alongside upstarts with larger market caps like Twitter and Groupon that are popping negative.

Forget your IPO window. This is nasty. Keep in mind that venture capital behaves like an amped version of the NASDAQ, and when the latter falls apart, it closes the liquidity cycle for private money, which impacts valuations down to the earliest stages. (So it’s not turtles, but actually QQQ all the way down.)

Twitter was hammered yesterday during its unlock period. Today, it has extended its losses, and is now down more than 20 percent over both days. AOL, the parent company of TechCrunch, is down more than 20 percent today alone. We had decent revenues, but less profit than expected.

King Digital, which today reported its first earnings as a public company, is down more than 10 percent. Its numbers on a year-over-year basis were great. But on a sequential quarter basis its number of unique paying users is down. That’s not good.

FireEye is down more than 20 percent. EPS guidance matters, I suppose. Oh and Groupon is down 17 percent after its earnings, again, failed to excite investors.

After a brilliantly light period of valuing either revenue growth or user growth over every other possible statistic, the market is singing a new hymn. Welcome to the new gospel.

Companies built with a now former-market mindset in their DNA will have a harder time going public. If King can make squadrons of dollars and still take a punch to the neck, everyone else is going to have a difficult time. Check the following:

Revenue increased to $607 million, which beat FactSet’s estimate of $602 million. Gross bookings were $641.1 million, which is up from the previous quarter of $632 million. EPS was $0.61 versus analyst estimates of $0.57.

And it’s down. A fluke? Not even close. Twitter has beaten expectations both quarters it has reported earnings as a public company. And it has been roughed up both times. Its valuation, now much lower than before it lost more than half its value, is still rich for a company that cannot turn on GAAP profits. Non-GAAP is fun, but discounting dilution as a non-cost, and not just a non-cash cost, only gets you so far.

For now, turn down for what? Market sentiment, apparently.

All data via Google Finance.