Today: Tech stocks plummet ahead of earnings reports, as investors get nervous that 2013's big gains may not be justified by Silicon Valley companies' earnings. Also: eBay's fight with Carl Icahn ends, Facebook's WhatsApp acquisition approved. Also: eBay's fight with Carl Icahn ends, Facebook's WhatsApp acquisition approved.
The Lead: Nasdaq has worst day in three years as tech stocks under attack
Just when Silicon Valley stocks seemed to be rebounding from a sharp dive into bear market territory, another sudden plunge Thursday seemed to point at a massive shift away from the sector by investors as companies prepare to divulge their first-quarter financial performance.
The tech-heavy Nasdaq composite index plummeted 3.1 percent Thursday, its worst day since November 2011, and the SV150 index of Silicon Valley's largest technology companies declined in line at 3 percent, also its worst single-day performance since November 2011. Broader indexes such as the Dow Jones industrial average and Standard & Poor's 500 suffered smaller yet still substantial declines, with tech and biotech stocks in those indexes blamed for the fall.
Thursday's plunge comes as formerly high-flying valley tech firms such as Facebook, Tesla Motors and Netflix prepare to release earnings from the first three months of the year. After the SV150's market cap reached pre-bubble levels thanks to a booming 2013, investors seem to be cutting risk by getting out of the stocks before they find out if the companies' revenues justify such a move.
"There's still a continual rotation out of the high-flying momentum stocks of 2013 into more value-driven opportunities," Chad Morganlander, portfolio manager for Stifel Nicolaus, told Bloomberg News. "This will continue in the coming weeks as investors look for consistency in earnings. You have concerns about high valuations and flat revenue growth, which is a perfect cocktail for a sector rotation out of growth and into value."
"As we go into earnings season, people are saying, 'I need to know what I own,'" Wedbush Securities director of trading Ian Winer told the Wall Street Journal.
Winer specifically mentioned Imperva, a Redwood City data-center security company that lost nearly half its market capitalization Thursday, dropping 43.7 percent to $28 after announcing that first-quarter earnings would be as much as 16 percent lower than its previous estimate.
The recent decline, which has sent many of those "momentum stocks" into a bear market -- 20 percent below peak value -- may just be the beginning, Platinum Partners president Uri Landesman told Marketwatch.
"Techs and biotechs really haven't cracked yet. I think it'll happen and people will be surprised how much they can really go down," he said Thursday. "So if they crack, it could get a lot worse. It wouldn't shock me if July Fourth weekend we wake up to a 1,600 S&P."
Biotech stocks were some of the hardest hit Thursday -- the Nasdaq Biotechnology Index fell 5.6 percent -- after the sector heated up in the first quarter, including a huge flow of initial public offerings. Gilead Sciences, Silicon Valley's largest biotech company in terms of revenues, had soared after approval of a breakthrough hepatitis C drug, but the Foster City company's stock tumbled 7.3 percent to $65.48 Thursday as rival Merck received good news on its own offering in that area.
SV150 market report: Good news or bad, almost all stocks fall
Only three companies in the SV150 index gained in Thursday's action on Wall Street, even as eBay emerged from the cloud of a fight with activist investor Carl Icahn over PayPal.
Icahn gave up his fight to spin off PayPal or hold an IPO for the payments company and add two directors of his choosing about a month before the two were positioned to battle it out at eBay's annual meeting. eBay said it will appoint a mutually approved independent director to its board, former AT&T CEO David Dorman, as a compromise. "I respect Carl's willingness to work together to drive sustainable shareholder value today and into the future," CEO John Donahoe, a target of Icahn's public insults against the company's corporate governance, said in a statement. Still, analysts don't expect calls for PayPal to be a separate company to end with Thursday's detente. "Just because Carl Icahn struck this agreement doesn't mean the issue won't continue and someone else won't carry the mantle," S&P Capital IQ analyst Scott Kessler told The Mercury News. "The situation is not completely over."
One of the trio of gainers in the SV150 on Thursday was Hewlett-Packard, which rose 0.2 percent to $32.80 after settling bribery allegations and learning of continuing declines in the PC industry Wednesday, with a boost from a Deutsche Bank rating of "Buy." Facebook fell 5.2 percent to $59.16 after receiving approval of its $16 billion acquisition of WhatsApp, with the Federal Trade Commission including a warning that the companies must live up to their privacy promises. Google dropped 3.6 percent to $546.69 and announced that it would make its Glass wearable computers available for sale to the general public for one day next week. Yahoo declined 4.2 percent to $33.40 and Yelp fell 10.9 percent to $63.47 after the Wall Street Journal reported that the companies' new partnership would result in the loss of former Yahoo reviews of local businesses. Tesla fell 5.9 percent to $204.19 after offering an official response to a Wisconsin lawsuit, and Apple dropped 1.3 percent to $523.48 while analysts continued to predict a larger iPhone 6. Pandora plunged 10.5 percent to $26.66 on the day, and Zynga dropped 6.9 percent to $4.07 before announcing a new chief financial officer.
The SV150 index of Silicon Valley's largest tech companies: Down 42.63, or 3.03 percent, to 1,362.45
The tech-heavy Nasdaq composite index: Down 129.79, or 3.1 percent, to 4,054.11
The blue chip Dow Jones industrial average: Down 266.96, or 1.62 percent, to 16,170.22
And the widely watched Standard & Poor's 500 index: Down 39.10, or 2.09 percent, to 1,833.08
Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.