Rewind to the blissful time before the COVID-19 pandemic, and WAAAX was an acronym that ASX investors were tossing around with fevered excitement. The ‘ASX’s answer’ to the US FAANG stocks, the WAAAXers were growing quickly and amassing incredible amounts of cash for shareholders. If you’re not familiar with the FAANG acronym, don’t worry. It stands for Facebook, Inc. Common Stock (NASDAQ: FB), Amazon.com, Inc. (NASDAQ: AMAN) Apple Inc (NASDAQ: AAPL) and Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), which of course used to be called Google.
WiseTech Global managed to put on almost 750% between May 2016 and September 2019. Altium managed roughly 470% over the same period. Appen was a top performer, adding more than 1,000% over that period, as did Afterpay. And Xero put up a still-respectable 300% or so of gains.
Well, the FAANG stocks have continued to show their dominance. All 4 of these US tech giants are right now, at, or near, all-time highs. Facebook is up more than 47% over the past 12 months. Apple, up 61%. Amazon is up 32.3% and Alphabet (C Class), 65%. Long story short, the FAANGs still have claws.
But the same can’t be said of the WAAAXers.
After reaching an all-time high of just over $38 in 2019, WiseTech has, as of today’s pricing, gone backwards to the tune of 32% from that all-time high from close to 2 years ago. Altium has lost 42% from its high watermark that it hit just before the pandemic struck. Appen is a real clanger, down more than 72% since August last year on today’s level. Afterpay was doing ok for a while there, topping out at $160 a share back in February. But again, on today’s prices, it has given up more than 45% from those levels. And Xero has been dealt a similar fate, falling around 30% from its all-time high of $158 in December last year to today.
So what’s changed? Well, some of the WAAAXers have run into problems scaling their business models in a post-COVID world. This is especially true of WiseTech, Altium and Appen. In Appen’s case, the shares were especially hard hit earlier this month when the company’s CEO warned that the pandemic had led to changes in its customers’ behaviour, and not in a way that benefits the company.
But ultimately, perhaps the story of the WAAAX shares so far just highlight how a narrative can get ahead of fundamental business performance. Just because a company grows at a breakneck speed for a few years doesn’t mean it will do so until Judgement Day.
But many of the WAAAX shares attracted prices over the past few years that arguably seemed to assume they would. When the market corrects this over-optimism, it can be devastating for existing shareholders. Remember, the great investor Benjamin Graham once said that in the short term, the market is a voting machine, and in the long term, a weighing machine. This might be exactly what we’ve seen play out with the WAAAX shares.