Mr Barrows said lower tech valuations were a sign that local investors understood the impacts of cost inflation on tech firms as the cost and availability of labour hit margins.
Some tech companies with manufacturing operations have also struggled with supply chain issues and chip shortages that have hit production.
NextDC was also nominated as an earnings season highlight by Garry Sherriff, head of Australian equity research and Australian technology coverage leader at RBC Capital Markets, alongside medical software company Pro Medicus, Macquarie Telecom and insurance software maker Fineos.
“Our key picks in the current environment have long-term underwritten revenues, little to no churn and solid balance sheets, and most also have positive free cash flow,” Mr Sherriff said.
Cyan Investment Management director and portfolio manager Dean Fergie said he believed the worst of the sell-off in local tech stocks was over, but there had been an ongoing shift in investor sentiment towards ambitious cash-burning stocks.
He described recent IPOs including pay day advance fintech BeforePay and shopping rewards platform My Rewards as disastrous, and warned the likelihood of any tech IPOs in the near future had been removed by investors’ treatment of any hint of negative news during earnings season.
Fundamentals before sentiment
”The tech sector had a very, very good run for a long period of time, but it was getting a bit heated, and valuations were pretty stretched on traditional metrics, and now a lot of the momentum has come out,” Mr Fergie said.
“When you start seeing a bit of a slide in share prices investors start looking for the bad information and not the good, which has come to some tech stocks with supply chain issues, and having to spend money on stocking up on chips, which has been a drag on cash and earnings.
“What we have seen in the sector [over reporting season and before] is a bit of a reality check on what investors should be paying for these companies that are not going up every other day … I think they are looking at them on a fundamental basis, rather than just a sentiment.”
Beforepay, which had already lost two-thirds of its value since its January 17 listing at $3.41 by the time of its earnings announcement last Monday, has since fallen further from $1.20 to $1.05 by the end of the week.
Another tech player to cop an earnings season hiding was online family-tracking and insurance app Life360, which tanked 46 per cent after it announced widening losses on February 24.
Still value to be found
Its shares were trading at $6.16 at the start of its results day and have headed south ever since, closing the week on $4.91.
It has spooked investors by paying nearly $300 million for Bluetooth tracking device maker Tile, which sells devices that are in alarming direct competition with behemoth Apple and its own AirTags.
Mr Fergie said tech stocks made up 30 to 40 per cent of Cyan’s C3G Fund as there was still value to be found, despite the change in broader investor sentiment.
He nominated small-cap video game developer PlaySide Studios as a positive performer after it reported an 87 per cent revenue rise and 78 per cent decrease in losses. Its shares climbed after its earnings announcement, before falling back to its results-day 93¢ on Friday.
“It is seeing some great numbers and signing great deals with multinational gaming companies like Activision Blizzard,” Mr Fergie said.
“It has even got a cryptocurrency NFT ( non-fungible token) angle in there that has earned them quite a bit of revenue recently.”
He also said marketing tech company PureProfile was another company that had impressed the market with a strong outlook in February.
