Software Stock Update: 2005 Year In Review

When I first compiled the statistics for this post, I did a doubletake and thought to myself "there's no way the market cap of the software space shrank by almost 10% last year!?!".  So I went back and double checked and sure enough it did.  Yes indeed, that giant "poof" sound you heard last year was almost $85BN in software market cap, or 10% of the total, going up in smoke.

Compare that to the 1.4% gain for all of NASDAQ and you start to wonder "What the hell happened?".  The most direct reason was that large cap enterprise software stocks almost uniformly declined last year, most by double digits.  IBM led the way in the value destruction parade by sheding over $34BN of market cap followed by Oracle which shed $18BN despite swallowing Peoplesoft during the year.  MSFT chipped in a comparatively modest $12BN while the combined SYMC/VRTS shed an astounding $9.5BN or about 33% of its market cap.  In fact the only large cap software stocks that managed gains were SAP and Adobe.  Everyone else was in loss city.  Small caps managed to do modestly better with the average stock posting a 1% increase, but clearly the software sector as a whole had a very bad year.

What drove these precipitous market declines? There are many factors at work and I started to write them all down, but I think I will save them for a separate post as the topic certainly deserves deeper discussion.

In the meantime, feel free to download the attached spreadsheet here as it has all of the end of year prices as well as the average multiple for each major sector and a list of all the IPO and M&A events. If you want to update the prices of the stocks in this spreadsheet automatically, click here to get Microsoft's automatic stock quote downloading plug-in for Excel if you don't already have it.