Why are these beaten-up small cap ASX tech shares seeing 52-week lows today?

The small cap ASX tech sector is suffering. What’s going on?

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ASX tech shares

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Key points

  • Small cap ASX tech shares are having a rough day. The last few weeks have been difficult for many technology names
  • Investors are expecting that the US Federal Reserve is going to start increasing interest rates in March
  • Businesses like Redbubble and ELMO are down 7% and 9% today, respectively

There are plenty of small cap ASX tech shares being beaten-up today and hitting 52-week lows. What’s happening?

It has been a rough start to the year for the ASX.

The S&P/ASX 200 Index (ASX: XJO) has dropped 6% since the start of the year.

But there are multiple technology businesses that are having a really difficult time now when it comes to their share prices.

Why are small cap ASX tech shares suffering?

Each individual business has its own operations, growth plans and management. However, the share prices of all businesses can move down in unison when there is negative news that could affect the valuation of nearly all companies.

Analysts, fund managers and market commentators are keeping a close eye on interest rates, particularly the US Federal Reserve interest rate because of how much influence that has on asset prices.

Legendary investor Warren Buffett once said:

The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.

According to reporting by Bloomberg, the US Federal Reserve is expected to suggest that March could be the time when interest rates start rising and the balance sheet starts reducing later in the year. Why? To fight inflation which remains persistently high.

These are some of the companies that are hurting today:

ELMO Software Ltd (ASX: ELO)

Today, the ELMO Software share price is down 8.75%. The small cap ASX tech share has fallen 14% in 2022 and has declined 44% over the past year.

Investors will soon get an update in the February reporting season about how growth at the HR software business is going. But, in the first quarter of FY22 it saw revenue growth of 52% to $20.7 million and annualised recurring revenue (ARR) growth of 61% to $88.5 million. It also released two new modules: ‘Experiences’ and ‘COVIDsecure’.

Redbubble Ltd (ASX: RBL)

The Redbubble share price is currently down 7% today and 43% in the past month.

This e-commerce business is currently finding it difficult to beat the strong marketplace revenue it saw in FY21. A recent trading update from the small cap ASX tech share showed that FY22 first half marketplace revenue was down 18% to $288 million.

It’s now expecting FY22 marketplace revenue to be slightly below FY21 underlying marketplace revenue (which excludes FY21 mask sales). A negative earnings before interest, tax, depreciation and amortisation (EBITDA) margin in the single digits is now expected in FY22.

Sezzle Inc (ASX: SZL)

The buy now, pay now US business has been suffering along with the rest of the BNPL sector. The Sezzle share price has declined 7% today and it’s down 72% over the past six months.

However, the month of November 2021 saw underlying merchant sales (UMS) rise 83% year on year.

Nearmap Ltd (ASX: NEA)

Aerial imaging business Nearmap has seen its share price fall almost 3% today, at the time of writing. In just the last three months, the Nearmap share price has fallen 40%.

Last month the small cap ASX tech share said that the North American annualised contract value (ACV) had surpassed US$50 million and the overall ACV portfolio had increased to more than US$100 million.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Elmo Software and Nearmap Ltd. The Motley Fool Australia owns and has recommended Elmo Software and Nearmap Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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