Pandemic tech darlings turned to duds in 2021

The Nasdaq CTA Internet Index is in the red this year compared with a return of more than 27% for the S&P 500. Cathie Wood’s famed ARK Innovation ETF, more than 30% of which was invested in information technology as of Sept. 30, has seen its net asset value decline 21% this year, underperforming the S&P by nearly 49 percentage points.

She isn’t alone. If you invested in enough tech stocks this year, you probably got burned by a few of them. Select lowlights include fitness-equipment company Peloton Interactive, down nearly 75% this year; social-commerce company Poshmark, down almost 82%; and education-tech company Chegg, down 66%. At certain points, the number of names blowing up simultaneously was dizzying: Chegg, Peloton, Zillow Group and Vimeo all took nosedives around their most-recent earnings reports, collectively erasing some $26.3 billion in market value in a single week last month.

A big part of the problem was the huge run logged in stay-at-home stocks in the latter half of last year. Many of tech’s 2020 darlings became duds simply by virtue of the fact that they appreciated too much too quickly. In the end, the numbers couldn’t keep pace.

Ms. Wood, at least, is sticking with the strategy that failed her this year. She said in a Bloomberg interview earlier this month that she expects it to yield “a compound annual rate of return of roughly 40% over the next five years,” emphasizing, “That’s a quadrupling.”

But investors shouldn’t expect all of this year’s dips to lead to easy dunks next year. Zillow, for example, is down over 50% in the year to date, and while its future without iBuying looks to be a much more steadily profitable business, the online real-estate company is still worth more than twice as much today as it was in early 2019, when it went big into the automated home-flipping business. If the tech sector has to earn its gains next year, many of its stocks still face an uphill battle.

Poshmark recently entered India, spurring hope that international growth could finally ignite the stock. But after disappointing third-quarter earnings, guidance suggested that Covid-19 uncertainty would affect Poshmark’s opportunities outside the U.S. next year, too. After upgrading Poshmark from “hold” to “buy” in July in part on the promise of “rapid expansion in new markets,” Stifel analyst Scott Devitt duly curbed his enthusiasm: “The pain of the recommendation thus far has been intense,” he wrote last month, “but will hopefully subside with the benefit of a time.” If that is the best he could offer on a “buy” recommendation, investors might want to sober up.

Some companies were just outplayed in a competitive dynamic that, unlike 2021, isn’t coming to an end soon. Having acquired U.S.-based Grubhub this year, Amsterdam-based Just Eat Takeaway.com is now down around 50% in the year to date. Metrics from both companies suggest the growth of food delivery has already peaked. Looking to next year, Just Eat says it will double down on Grubhub’s major metropolitan markets such as New York City, where regulators have passed permanent commission caps. DoorDash, at least, is continuing to add to its gains by expanding into categories such as alcohol and convenience delivery. But even despite that, tough year-ago comps have driven down shares of the U.S. food-delivery market leader by roughly 19% from where it closed on its first day of trading last December.

Remote work, meanwhile, is far from dead, but the future is looking as though it will require in-office work at least some of the time. That means companies such as Zoom Video Communications, down 43% this year, will be hard-pressed to record triple-digit year-over-year revenue growth again soon, let alone string together five consecutive quarters of it again. Wall Street is forecasting Zoom’s sales will grow less than 20% from a year earlier in the quarter ending Jan. 31. DocuSign, down 29% this year, and Vimeo, down 65% since its May spinoff from IAC/InterActiveCorp, will face similar challenges—as will Chegg, as long as schools can remain open.

Some other companies, having nailed a niche, still have work to do to show they can have more universal appeal. Online styling company Stitch Fix, down 66% this year, is in the midst of what management says could be a multiyear makeover, as it works to make a la carte shopping a priority. Designer clothing rental company Rent the Runway, down 54% from where it closed on its first day of trading in October, is still working to get back to pre-pandemic levels of subscribers and has now added resale in hopes of acquiring broader consumer interest for its subscription platform over time.

Hardly a promising indication of near-term prospects, Peloton’s stock has been trading lately on the fate of a character who used its bike on a fictional television show. If the early pandemic was about trading on stories, many of these companies seem to have lost the plot.

This story has been published from a wire agency feed without modifications to the text