NEW YORK — It’s a tough time for a tech debut.
As e-commerce giant Alibaba gets ready for a blockbuster stock sale in the next few months, technology shares are retreating. For two years, investors bid up biotechnology and Internet companies, enticed by their strong growth prospects in an otherwise weak U.S. recovery. But they have sold off those stocks since late February, realizing they can find better value elsewhere. So-called growth stocks like Amazon and Groupon are out of favor. Companies that pay healthy dividends and have a long record of profitability, like utilities, are in.
Amazon has dropped 28 percent since the beginning of the year; Netflix is off 13 percent; more risky dotcom companies such as Groupon have plunged more than 50 percent.
Into this brutal environment comes Alibaba, a company that propelled the rise of online shopping in China and is now preparing an initial public offering that could become the biggest in U.S. history.
It’s not an optimal time to pitch tech. Internet companies, whose market values ballooned in 2013 amid high hopes, have pulled back in 2014 as investors reassess their prospects. Twitter, which held its IPO last November, peaked at $74.73 a month later. But the stock is down more than half from that high, including a plunge Tuesday after company insiders were allowed to sell stock for the first time since the offering.
Roughly $149 million has been pulled out of science & technology funds the last two months, according to mutual fund data provider Lipper. Over the same period, about $5.2 billion has flowed into value-focused mutual and exchange-traded funds. The lopsided moves show that investors are skittish about tech.
Tech is the highest-profile casualty of a fundamental shift in investor behavior, market watchers say. Instead of putting money in growth stocks — companies whose earnings rise at above-average rates — fund managers now want shares of safer companies. Instead of hunting for stocks whose prices could double this year, investors want so-called value stocks, companies that are undervalued by the market but pay relatively high dividends, sell necessities, and have mature business models.
Despite the tough conditions for Internet stocks, most analysts expect Alibaba’s IPO to raise at least $10 billion for the company. The figure to beat is Facebook, which brought in $16 billion when it went public in May 2012.
Skepticism is recent
The recent skepticism about tech companies is a reversal of the last two years.
Money poured into high-growth tech companies starting in 2011 because they were the only parts of the economy that seemed to be expanding, market strategists say. Netflix, Tesla Motors and Amazon.com were posting double-digit sales growth while non-technology companies were eking out profits by cutting costs.
Some tech stocks remain wildly expensive, even after a recent sell-off. Amazon.com, for example, trades at around 470 times its earnings per share for last year.
Besides high prices, another trend has drawn investors’ away from Internet stocks. Non-technology companies are starting to see modest increases in sales and profits. Evidence is also emerging that overall U.S. growth is picking up after a tough winter.