The dream of the Israeli tech companies that held IPOs on Wall Street turned into a nightmare when the bubble burst at the end of 2021. But now companies like Lemonade (NYSE: LMND), Camtek (Nasdaq: CAMT), Unity-ironSource (Nasdaq: U) and JFrog (Nasdaq: FROG) are bouncing back, riding the wave of this year's strong gains on Wall Street.
In contrast to privately-held Israeli startups and unicorns where investors are still 'sitting on the fence' and waiting for a change in the trend. Publicly traded companies are benefitting from the optimism on the US capital markets, which has already brought some investors back in for profitable and growing tech stocks.
In the previous boom, during the Covid pandemic in 2020-2021, investors saw revenue growth as a condition for investment and an increase in the value of the stock. Subsequently the focus shifted to the profits of those companies, but now it appears that even companies reporting losses are participating in the renewed gains.
Digital insurance company Lemonade, for example, has never reported a profit. Last week it published its financial results for the second quarter of 2023 in which its net and operating losses even widened. Nevertheless, investors have flocked to Lemonade's stock in recent months, which has risen 40% since the start of the year, despite losing 21% last week. The share price is currently $17.13, giving a market cap of $1.19 billion.
Unlike most Israeli tech companies traded on Wall Street, Lemonade is aimed at the end consumer and the volatility of its stock indicates the prevailing optimism in the market regarding the general mood and the expectation of an increase in consumer spending. It seems that more than profits or losses, it is affected by macro developments such as the interest rate hikes or restraining inflation.
Indulging in remuneration, cutting back on marketing
Future weakness in the stock markets will put growth companies to a test, in which they will be required to choose between continuing to pursue profitability and simply watching their share price rise, which will lead to a return to losses that include excessive spending on wages and real estate.
Lemonade reported that there has been an increase in capital remuneration of almost all the company's employees, with the exception of marketing and sales staff. Quarterly spending on management remuneration and general expenditure increased by 37% from quarter to quarter while development expenses increased by 35%, while Lemonade cut marketing and sales expenses by 33%.
While the Nasdaq has risen by 35% since the start of 2023, other Israeli tech stocks have also outperformed the market. E-commerce company Global-E Online (Nasdaq: GLBE) is up 100% since the start of the year at $41.13, giving a market cap of $6.756 billion, work operating systems company monday.com is up 39% at $160.99, giving a market cap of $7.772 billion and insurance software company Sapiens (Nasdaq: SPNS) is up 55% at $30.04, giving a market cap of $1.657 billion.
Published by Globes, Israel business news - en.globes.co.il - on August 6, 2023.
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