Technology sector loses BRL 3.3 billion in market value with higher interest rates

Technology companies with shares traded on the São Paulo Stock Exchange, B3, have already lost R$ 3.3 billion in market value this year, according to an exclusive survey carried out by the consultancy Economatica, at the request of the CNN Brasil Bunsiness. The group formed by 17 companies shrank 2.5% between January 3 and February 2.

The first version of this report indicated a loss in market value of R$ 3.3 million, but the information has been corrected. The correct is R$ 3.3 billion.

While the Ibovespa started 2022 breaking consecutive records, at 113 thousand points, many of these tech companies see the value of the papers melt. Although Brazil does not have a technology-oriented index, such as Nasdaq, in the United States, the domestic market has an ETF (index fund) focused on Brazilian companies in the sector, the TECB11. And, from its debut on B3 on October 4th until Tuesday (2nd), the fund is down about 38%.

Experts interviewed by CNN Brasil Business attribute the result to the rise in interest rates. The Copom (Monetary Policy Committee) raised on Wednesday (2) – in its first meeting of the year – the Selic rate to 10.75% pa, an increase of 1.5 percentage points.

The impact of Selic on technology companies’ accounts is due to the fact that the sector is known for resorting to credit to finance growth. Roberto Attuch, founder and CEO of Omniinvest, says that “with the higher interest rate, credit becomes more expensive, which hinders the growth of these companies”.

There are two financing models: taking credit at the bank or receiving a contribution from an angel investor or private equity (PV).

Rodrigo Franchini, partner at Monte Bravo Investimentos, explains that “if companies decide to take out credit, the bank will say that the ‘Brazil cost’ for such an operation is around 11%, that is, companies will need to provide greater profitability to cover the cost”. Thus, the higher the Selic, the more expensive the cost of credit.

“If they opt for the angel or PV investor, lenders will want an investment above the prime rate, which means that the money cost is also more expensive.”

Another point that harms the sector, according to experts, is the balance sheet focused on the future. Franchini says that the market usually anticipates the profit in up to ten years of these companies.

“And, during the pandemic, while several sectors had to readjust to the crisis, the technology sector proved to be resilient, as it took a digitalization of everyday life for companies to be able to continue with their operations”.

He says that social isolation helped some companies to have more cash, generating greater growth and investment. “What they wouldn’t have at other opportunities.”

However, with the resumption of face-to-face work, according to the specialist, shareholders began to migrate to other investments, “such as fixed income, in the face of high interest rates, selling their technology papers”.

“In the end, investors had to redo their paper repricing calculation, as the end of isolation will impact future cash, as well as the more expensive cost of credit – which hinders companies’ growth -, leaving companies in the sector less attractive to shareholders”, says the Monte Bravo partner.

The survey carried out by Economatica shows the performance of the 17 companies in the technology sector at B3:

Similar movement in the US

A similar scenario has also frightened technology shareholders on the Wall Street exchange. The Fed (Federal Reserve, Central Bank of the United States), on January 26, said that it will keep interest rates in the range between 0% and 0.25%, but declared that it hopes to have the necessary conditions to raise rates “soon ”.

“Unlike last year, when industry stocks rose with the Fed’s liquidity injection (about $120 billion a month) and low interest rates, the bullish forecast has affected tech companies that aren’t as consolidated in the market and are known as ‘promising’”, says the founder and CEO of Omninvest.

As in Brazil, interest also impacts future cash and companies’ access to credit.

“And, in addition, with deteriorated cash, the dividends they offer to their shareholders also end up being reduced”, explains Attuch.

According to the expert, with reduced earnings, investors choose to sell their shares, which ends up overturning the main technology index in the US. Since the first trading session of the year, the Nasdaq has already dropped almost 10%.

It is worth remembering that Fed Chairman Jerome Powell, in a press conference, indicated that the first rate hike should take place in March, “if conditions are right”.

weekly increase

This week, however, the financial statements of the most consolidated technology companies have given breath to the three main Wall Street indexes.

On Wednesday, the S&P 500 closed up 0.94% to 4,589.38 points, the Dow Jones was up 0.63% to 35,629.33 points and the Nasdaq was up 0.5% to 14,417. .55 points.

Franchini and Attuch claim that the companies’ good results were due to a process of digitization in people’s daily lives.

“Social isolation and the pandemic forced the purchase of technological devices; and today, those who do not have a digital strategy, practically do not exist”, declares the founder and CEO of Omniinvest

Advanced Micro Devices, a manufacturer of integrated circuits, had a 68% increase in revenue compared to 2020. While Google’s owner, Alphabet, had a record annual revenue of US$ 258 billion.

WRONG: Unlike what was initially reported, the loss of market value of technology companies traded on B3 this year is BRL 3.3 billion and not BRL 3.3 million. The information has been corrected.