Israeli tech companies that have gone public on Wall Street over the past decade are facing a harsh reality, as revealed by Viola Ventures' new index. Dubbed the Israeli Technology Index (ITI), it tracks approximately 30 Israeli technology companies, including industry giants such as Mobileye and Wix. However, despite its prominence, ITI has shown worrying trends, declining 35% in 2023 alone, compared to the Nasdaq's 38% rise. While some have blamed the poor performance on premature listings and SPAC mergers, Viola said this reflects a broader undervaluation of Israeli technology and its potential amid market volatility. It is argued that this suggests a great opportunity.
Viola, one of Israel's oldest venture capital funds, compares the stock price performance of young companies, including those in the fund's portfolio, against the general Nasdaq index and the more specific Cloud Companies Index (EMCloud). We constructed this index to find out. At this stage, the data is not particularly encouraging. The index shows a return to the historic undervaluation of Israeli companies that was typical 20 years ago. Over the past two years, the Nasdaq has fallen just 5%, the cloud companies index has fallen 25%, while the Viola Israel index has fallen 35%. In 2023 alone, when the stock market recovered, Israeli stocks did not recover as much as U.S. stocks. The Nasdaq rose 38%, the Cloud index rose about 30%, while the Israel index rose only 15%.
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Israeli stocks have also underperformed over the past two years, despite maintaining higher growth rates and spending less than the average of companies included in the general index. Despite the perception that American tech companies have a higher rate of layoffs, cloud companies actually saw employment increase by 11% and Nasdaq-listed companies by 3%, while Israeli companies' employment increased by 2023. Reduced workforce by 9%.
The Viola index, which will be shared for the first time here, is called ITI (Israeli Technology Index), and it indexes approximately 30 Israeli technology companies traded on Wall Street, including Mobileye, Wix, monday.com, Oddity, Taboola, Riskified, and Lemonade. Track company performance. , Playtika, Global-e, SolarEdge, JFrog, Payoneer, CyberArk, Fiverr and more. This is actually the first index to track the performance of publicly traded Israeli technology companies, similar to the EMCloud index, which monitors the performance of cloud companies traded on US stock exchanges. Like this index, the Israel Index is updated quarterly as new companies enter. This index measures the strength of a company based on its size. Recently, ןronSource and NeoGames were sold and delisted from trading.
The main question is: Are the companies included in the Viola New Stock Index underperforming because they are actually Israeli companies, or because many of the companies included in the index were issued prematurely? That's what it means. However, the index includes some of Wall Street's oldest and largest Israeli companies, such as Check Point and Nice, which behave like the general market and trade at similar or higher multiples. Not yet. Meanwhile, about one-third of the companies included in the new index were companies that went public through SPAC mergers in 2021. Many of these companies have poor earnings, large losses, and are far below the performance they were presenting to investors before the SPAC.
However, Viola believes that it is because these are Israeli companies that he sees the current poor performance as an opportunity. “We are back to the situation we had in the 1990s and early 2000s, where Israeli companies were undervalued on Wall Street,” Viola founding partner Harel Beiton told Calcalist. “In the past, Israeli companies were considered inferior to American companies and traded at 20-30% lower prices, but over the years they have increased in value and in 2021 there will be a premium on Israeli companies. Over the past two years, we have seen a change in trends even before the war and political turmoil, which was exacerbated by the political situation and, of course, by the war.
“During this time, Israeli listed companies have actually done everything right, from maintaining high growth rates to budgetary discipline. Israeli companies have never missed a quarter due to geopolitical conditions. As a result, in my opinion, Israeli companies are actually much better and stronger than what is reflected in their current market value. It comes from the fact that it has been revived and needs to be revived.”
However, while Viola's views about large companies may be correct, the bottom third of the index casts doubt on these assumptions. This includes many automotive companies such as Arbe, Innoviz, and REE, which are not connected to the cloud sector and have no real revenue. Additionally, the index includes SPAC stocks that have historically been unpopular with investors, companies like Hippo and Pagaya.
Beit-On dismissed this explanation, pointing out that there are many companies in the cloud index that have been issued through SPACs. “While it is true that there are companies listed on Israeli indexes too early and too small for public markets, their weight in the index is very small. There is a clear distinction between “enterprises”.
