Tech shares have had a rough time of it so far this year. Many of the companies that saw massive share price gains during COVID-19 lockdowns in 2020 – like Afterpay Ltd (ASX: APT), Bigtincan Holdings Ltd (ASX: BTH) and Whispir Ltd (ASX: WSP) – have been sold off heavily this year as investors rotate out of growth shares and into value stocks and beaten-down blue chips.
In this environment, the last thing a tech company needs is a regulator crackdown or an allegation of copyright infringement. This is the kind of news that can send already spooked investors running for the hills. And yet this is what has happened to two ASX tech companies recently.
Let's take a look at the allegations made against the two companies.
Nearmap Ltd (ASX: NEA)
Nearmap is an aerial imagery company that provides high-resolution images and geospatial data to business and government clients. This allows people working in fields like engineering, infrastructure, mining and construction to plan and analyse complex projects and even conduct virtual site visits.
The Nearmap share price was rocked earlier this month when the company announced that a copyright infringement complaint had been filed against its American subsidiary, Nearmap US, Inc. in the United States District Court. The complaint has been made by two companies, Eagle View Technologies, Inc. and Pictometry International Corp, and alleges that Nearmap's roof-estimation technology infringes on their patent.
In the announcement, Nearmap attempted to reassure investors that the complaint didn't relate to the company's core proprietary technology. Commenting on the news, Nearmap CEO and managing director Dr Rob Newman stated that "the allegations are without merit" and that "the business remains unaffected by the complaint."
However, investors still fled in their droves. The Nearmap share price plunged over 20% on the day of the announcement and is now down by around 21% for the year.
EML Payments Ltd (ASX: EML)
EML is a payments solution company. Broadly speaking, EML operates in three key segments: branded gift cards, general-purpose reloadable cards (notably for bookmakers like Ladbrokes and BetEasy), and virtual account numbers that facilitate transactions between businesses and their suppliers.
Despite the impacts COVID-19 lockdowns had on the retail sector last year, the EML share price climbed steadily over the second half of 2020 and into 2021. In fact, as recently as early April this year, the company's shares were trading at a record high price of $5.89.
But that all changed this week when EML announced that the Central Bank of Ireland had raised "significant regulatory concerns" over the operations of its Irish subsidiary PFS Card Services (Ireland) Limited. The concerns centre around the subsidiary's anti-money laundering and counter-terrorism financing frameworks.
Any company announcements that mention money laundering and terrorism, whether proven or not, do not sound good to shareholders. And while EML stated the regulatory concerns do not affect its North American or Australian operations, it also revealed that 27% of its total revenues over the period 1 January 2021 to 31 March 2021 came from programs facilitated by PSF.
The EML share price collapsed on the day of the announcement, falling a whopping 46% to just $2.80. EML shares have since posted a partial recovery, trading at $3.38 as at the time of writing. However, this still means EML has lost around 42% of its market capitalisation in the last two months.
