The following article is from Software Equity Group’s 2011 Q3 Software Equity Industry Report. A complimentary copy of the quarterly report can be downloaded here: http://www.softwareequity.com/research_reports.aspx
The major U.S. exchanges and the median stock price performance of public companies comprising our Software, SaaS and Internet Indices all finished lower at the close of Q3 2011. A U.S. credit rating downgrade and European debt fears proved too much for investors, who eventually opted for capital preservation over upside potential. It was a jolting ride. In August and September, the Dow industrials changed by more than 1% on 29 days, and more than 2% on 15 days. The volatility was reminiscent of the market’s extreme volatility in Q4 2008.
By the close of the third quarter, the Dow, S&P 500 and NASDAQ were down 5.7%, 10.0% and 9.0%, respectively, from the first trading day of 2011 (Figure 2). During the same period, the SEG Software, SEG SaaS and SEG Internet indices were down 9.5%, 17.9% and 20.5% respectively. The dramatic decline of public Software, SaaS and Internet company stock prices reflects an investor selloff of relatively risky technology stocks and a flight to Treasurys. Across all three SEG tracking indices, 197 (71%) of the 278 public companies comprising our indices reported lower year-to-date (YTD) stock prices, far greater than the 99 companies (35.6%) that saw their stock prices decline by the close of 2Q11. Still, ten outstanding software companies managed to achieve YTD stock market returns on September 30 that exceeded the first trading day 2011 closing price by more than 45% (Figure 3). Included in the group is Internet high flyer, LinkedIn, which posted a 74% YTD return over its first day closing price in May of this year.