This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024.
Many companies seized the opportunity to go public during a period of temporarily high valuations. However, the aftermath is severe, and the Swedish tech miracle is significantly shaken, as revealed by an extensive review conducted by SvD’s tech analyst Björn Jeffery.
A large bell, mounted on a two-meter-high stand. It was the solution to a problem we will likely never face again in our lifetime.
In the spring and summer of 2021, the tech stock market was hot. The list of companies eager to go public was long. Adam Kostyál, then the Swedish head of listings at Nasdaq, faced an unusual challenge. With corona restrictions still in place, filling Nasdaq’s office in Stockholm with people celebrating was not an option. At the same time, it seemed impossible to list a company without ringing the iconic bell.
If the companies couldn’t come to Nasdaq and the bell, the bell had to come to the companies instead.
Thus, the mobile Nasdaq bell was invented.
For a couple of years, it shuttled between the offices of hopeful tech companies ready to meet the stock market. Celebratory and relatively corona-safe.
From 2020 to 2022, about 35 tech companies were listed on Nasdaq Stockholm and First North. Interest rates were low, and risk appetite was high.
“The Swedish tech miracle” is a term often mentioned. It primarily refers to the number of startups and a handful of major successes, like Spotify and King.
Whether it is a miracle or not is debatable. But one thing is clear: on the Stockholm stock market, it is now more “tech crisis” than “tech miracle.”
The development since the many IPOs has been weak. The market deflated completely, and most companies have not recovered.
What happened?
First of all, there is currently no good way to even track the sector described as tech on the Swedish stock market. These are companies that exclusively operate and conduct business in a digital environment.
Nasdaq has a blunt categorization where companies end up in the “Data/IT,” “Finance,” or “Services” boxes. Nasdaq’s own index “OMX Stockholm Technology PI” is a mix of consulting firms, electric vehicle chargers, and various software. Essentially all major and newer tech companies on the stock market are missing from it.
Swedish tech funds like Robur Technology and TIN Ny Teknik do not only invest in Swedish tech companies, making them misleading as a guiding star. Investment banks often have private indices their clients can access, but they are rarely public or complete.
To try to grasp how Swedish listed tech companies are developing, SvD took matters into its own hands. Together with the American service Thematic, we built our own index to depict the development.
The index takes the 30 largest tech companies from Sweden, according to specific criteria, and compiles them into a unified picture. It is reweighted four times a year and includes Swedish companies that have chosen to list abroad – such as Spotify. The index is equally weighted to avoid small price movements in large companies overshadowing everything in the smaller ones.
So what does this index show?
The starting point is set to January 2022. Overall, the Swedish tech stock market has lost more than a third of its value since then – down around 39 percent. This can be compared to the broad index for the Stockholm Stock Exchange (which is weighted) that has declined by 4 percent in the same period.
The absolute best performer among the 30 in our index has been the gaming company Betsson, with an increase of 128 percent. The opposite can be found in Viaplay, where 99.4 percent of the value has been erased since January 2022.
Fortnox – long in the spotlight for its stock market success – saw its significant rise from 2018 to 2022 but has since had a more modest increase of around 13 percent.
The communications company Sinch – which reached its peak in September 2021 – has slid significantly since then. Since the index’s start, they have lost over 79 percent of their value.
Of the 30 largest tech companies on the stock market, only nine have increased in value since January 2022. And two of them – MTG and Lime – have only increased by single-digit percentages.
The global tech sector has also had a tough period. But compared to the tech-heavy Nasdaq 100 index, which has risen nearly 20 percent in the same period, and the S&P 500, which has increased by over 17 percent, the Swedish tech sector’s performance is much worse.
The aforementioned Nasdaq 100 includes many tech companies but is not solely composed of them. Companies like PepsiCo, Marriott, and Starbucks are also among them.
For a more accurate comparison, we need to look at something with a more pronounced tech profile. One option is the exchange-traded fund First Trust Cloud Computing ETF (SKYY), which exclusively contains companies engaged in cloud services.
It includes 65 companies in total and includes some of the largest ones, such as Alphabet (Google) and Amazon. It is not a perfect comparison, but it is illustrative enough to show a picture.
Despite a sharp decline in SKYY from the beginning of 2022, American companies have recovered better. In total, it has fallen by around 8 percent, which is a weak development but significantly better than its Swedish counterparts, which have dropped over 36 percent in the same period.
That tech companies generally underperform on the stock market is not just a Swedish phenomenon. But our index and comparison with the U.S. also reveal something else: the enormous importance of size.
Of the nine tech companies that have increased in our Swedish tech index, only two belong to the lower, smaller half of the index (in terms of market value). Our index only looks at the 30 largest tech companies with Swedish ties, but if we made the list twice as long, the pattern would be the same. To be a successful tech company on the stock market, you need to be big.
On the American SKYY, the pattern is identical. Only four of those with positive development are among the smaller half of the index. The big winners are also very familiar names. Microsoft, Google, Amazon, Oracle, and Salesforce. With only a handful of exceptions, it is clear that smaller tech companies have performed significantly worse on the stock market than the larger ones.
This is largely due to the enormous advantage that tech giants have had over the past 10–20 years. Several have been de facto monopolies in their respective areas. This has created enormous value and an advantage that is nearly insurmountable.
Looking at the list known as the “magnificent seven” – the seven tech companies representing around a third of the value on the S&P 500 – several of them reappear: Apple, Meta (Facebook), Amazon, Alphabet (Google), Microsoft, Tesla, and Nvidia.
What SvD’s review shows is an extension of the development for these magnificent seven. The absolutely largest tech companies perform disproportionately well. The rest have had a much tougher development.
The tendency is also noticeable in our Swedish index, where Spotify is among the few in the positive table. They are also by far the largest – and their market value is higher than all the other 29 companies in our index combined.
One question to ask is whether many of the tech companies are small because they have performed poorly, or do they perform poorly because they are small?
It’s leaning towards the latter. In both our own index and SKYY, those who have performed best are many times larger than the rest. They are on the same lists, but are essentially entirely different kinds of companies.
Hemnet – which has performed incredibly well and increased by 73 percent – is today more than six times larger (in terms of market value) than Storytel, whose stock has fallen 65 percent.
Small companies have generally performed worse than the stock market as a whole since January 2022. Down 14 percent for Nasdaq’s Swedish Small Cap index during the period.
But the Swedish listed tech companies are much worse than that. Look at the gaming companies Stillfront and Embracer, for example. Down 70 and 72 percent, respectively, since our index started. Admittedly, they are still up compared to their listing, but the declines are brutal.
Tech investor VNV – which owns a large stake in Voi – is down 73 percent.
The acclaimed communications company Truecaller has also fallen by over 67 percent.
Has it always been the case that smaller tech companies have fared worse on the stock market? It’s possible. But why do tech companies continue to go public then?
It may be related to the reason they even considered the stock market in the first place.
Previously, companies went public to raise money. Historically, this has likely been the reason for most who chose that path. Access to capital and financing – in various forms – increases significantly.
Looking at the smaller tech companies on the stock markets, you also find several examples of the opposite.
Companies that go public so the owners can cash out instead.
Venture capital and private equity firms‘ business model is to sell for more than they bought for. It’s a well-known model that has generated significant value, especially in Sweden. When they take companies public, the purpose is often to create liquidity to sell off a large portion of their shares.
One example is the survey company Cint. At the IPO, funds linked to the venture capital firm Nordic Capital owned over 93 percent of the shares. The company had a good first year on the stock market, but has since seen very weak development. The stock price has fallen over 84 percent since the start. Nordic Capital’s share today is around 8 percent.
Another example is the e-commerce company Revolution Race. The major owners there are the venture capital fund Altor and the couple Pernilla and Niclas Nyrensten. Since the IPO, the major owners have reduced their ownership from around 61 and 34 percent to about 20 percent each.
They have followed their lock-up periods but have gradually reduced their ownership in the company. Revolution Race’s stock has also fallen over 34 percent since the IPO but has rebounded significantly since the worst dip in 2022.
Then there are companies that perhaps should never have gone public in the first place. Their development was boosted by consumer behavior during the pandemic that proved difficult to recreate.
The interior design company Desenio is one such example. When Sweden was indoors avoiding infection, they invested in posters and artwork for decoration. Desenio went public in February 2021.
Three years later, revenue has nearly halved, and the stock price has collapsed. At the IPO, the major owner Verdane sold shares for 72 SEK. Today, the price is just under 0,30 SEK. They are thus excluded from our stock index today.
The selling parties in all these companies have made good deals. The liquidity on the stock market has enabled trading for both funds and small investors. But the development of the stock price since they went public has often been stumbling. While in private ownership, they grew significantly.
A partial explanation for the pattern is that in all three cases, there are venture capital firms among the owners whose model is to exit their investments when favorable. Each company also has its unique situation and motivation behind the listing. Some, like Desenio, had enormous tailwinds that quickly subsided. Others, like Revolution Race, are working to recover from the drop after the introduction and owner sales.
But for many, the stock price collapses seem difficult to reverse. It’s hard not to think that many of these new, smaller listed tech companies may not fit so well on the stock market, after all.
Of course, there are also examples of a different type of journey. The slow company building, using the stock market as a method.
Friday, March 20, 2015. It is the first trading day for the gaming technology company Evolution Gaming on Nasdaq First North. The business press noted the event but had more important things to think about. The Riksbank had just cut interest rates between its regular meetings.
Founders Fredrik Österberg and Jens von Bahr, however, had a good start in the listed environment. They sold picks and shovels to the gold rush in online casinos. Somewhat in the background of the large companies, Evolution made strong progress on Nasdaq’s smaller exchange.
Just over two years later, they were admitted to the Nasdaq Stockholm’s main list. Gambing technology – this somewhat derided genre – had been socially accepted.
A visionary investor who invested in Evolution in 2015 has had an almost unbelievable development. The stock price has increased by nearly 6,500 percent since then. And it has also become a favorite among small investors with around 83,000 private shareholders.
Österberg and von Bahr have sold many shares along the way as well. Both in the IPO and most recently for billions in May 2021. But the difference is that the value of the company has continued to increase for the remaining shareholders since then as well.
The competitor Kindred Group (formerly Unibet) has had a similar development.
They went public in 2005 and have had a price development of over 320 percent since the start. But it has taken them almost 20 years to get there.
The journey that Evolution and Kindred have made is desirable but unusual. They were early, found an incredibly profitable business segment, and delivered quarter after quarter. A role model for new companies on the stock market. They grew and scaled up in the listed environment.
At the same time, it is a type of journey that does not resemble many others in the Swedish tech category – at least not yet.
Looking at the new Swedish tech companies on the stock market, they have lost 80–90 percent of their value since the introduction. Especially the smaller ones, as mentioned. The stocks will have difficulty recovering in the short term. And doing new share issues at such low prices would lead to a somewhat devastating dilution. If they do not manage to reverse the stock price development in time, there is a risk they will become zombie companies. They live, but are essentially dead on the stock market.
The opportunity to buy them out of there has thus rarely been better – or cheaper.
Can there be another Swedish tech miracle on the stock market in the future? It depends mostly on the quality of the companies that might consider going that route.
A number of larger companies – with a long business history, at least by tech standards – such as the shopping service Klarna, fintech company Trustly, and database company Neo4J, have all been mentioned as potential candidates within the near future. Likely before 2025 ends, unless new major macro crises occur.
For a miracle to happen, long-term owners are also needed. Those who use the stock market to develop and build these companies further over a long time.
The stock market is meant to be a trading place – not a final destination. The big values are usually built over a very long time horizon. But then one must survive an often winding road ahead.
Our index suggests that the stock market is not necessarily the best path for all tech companies. It is easy to be swept along by temporarily high valuations when going public. But for many, these valuations have created a new type of problem – and one that takes a long time to fix. They now need to rebuild trust from the stock market and show that they belong on the stock market – after all.
Here are all the companies that are included in SvD:s tech index, in June 2024
Spotify Technology SA (SPOT)
Evolution AB (EVO)
Fortnox AB (FNOX)
Embracer Group AB (EMBRAC.B)
Kinnevik AB (KINV.B)
Hemnet Group AB (HEM)
Kindred Group Plc (KIND)
Sinch AB (SINCH)
Vitec Software Group AB (VIT.B)
Paradox Interactive AB (PDX)
Better Collective A/S (BETCO)
Betsson AB (BETS.B)
Modern Times Group MTG AB (MTG.B)
Truecaller AB (TRUE.B)
Byggfakta Group (BFG)
Boozt AB (BOOZT)
VNV Global AB (VNV)
Creades AB (CRED.A)
RVRC Holding AB (RVRC)
Stillfront Group AB (SF)
Lime Technologies AB (LIME)
Gaming Innovation Group, Inc. (GIGSEK)
Storytel AB (STORY.B)
Coinshares International Ltd. (CS)
Viaplay Group AB (VPLAY.B)
BHG Group AB (BHG)
Kambi Group Plc (KAMBI)
Cint Group AB (CINT)
VEF AB (VEFFF)
Acast AB (ACAST)*
* Disclosure: I’m on the board of Acast.
This column was first published in SvD Näringsliv, in Swedish, on June 22nd, 2024.