Mass layoffs have dominated recent headlines on Big Tech amid a turbulent macroeconomic environment. However, the broader software industry is positioned to benefit from lasting tailwinds, such as increasing digitization and automation of business operations, hybrid work culture with more remote teams, and growing demand for cyber security.
Global revenues from software services are expected to grow at a 7.9% CAGR over the next five years to reach $812.90 by 2027, with the United States well-poised to benefit the most from it.
However, given the increased borrowing costs and a lingering possibility of an economic slowdown in the near term, investors should be careful to bank on fundamentally strong businesses while letting go of the ones whose struggles may be far from over.
It could be wise to avoid Robinhood Markets, Inc. (HOOD), Monday.com Ltd. (MNDY), and Matterport, Inc. (MTTR) because of their fundamental weakness. However, quality stock Progress Software Corporation (PRGS) could be an excellent addition to your portfolio.
Stocks to Sell:
Robinhood Markets, Inc. (HOOD)
HOOD is a financial services platform that allows users to invest in exchange-traded funds, stocks, options, cryptocurrencies, and other financial instruments. The company also offers personalized financial learning and education solutions, which include Robinhood Snacks, Robinhood Learn, Newsfeeds, Robinhood lists and alerts, and First trade recommendations.
Yesterday, it was disclosed that Bankrupt cryptocurrency lender BlockFi is suing Sam Bankman-Fried to seize shares in HOOD that the FTX founder allegedly pledged as collateral just days before his exchange collapsed. BlockFi filed for bankruptcy after sustaining a severe liquidity crunch triggered by the failure of FTX.
Getting mired in controversy surrounding the FTX blowup could be sentimentally negative for the FTX stock.
On August 8, 2022, HOOD announced its second round of layoffs this year, slashing 23% of its headcount by letting go of 800 employees, with marketing, operations, and product management functions of the firm being the most impacted. The company cited a weak economic environment and depressed trading activity as major causes behind its decision to trim the workforce.
For the third quarter of fiscal 2022, ended September 30, HOOD’s net revenue decreased 1.1% year-over-year to $361 million. The company’s transaction-based revenue declined 22.1% year-over-year to $208 million during the same period.
HOOD reported a net quarterly loss of $175 million, translating to a loss per share of $0.20. Its total liabilities stood at $17.65 billion as of September 30, 2022, compared to $12.48 billion as of December 31, 2021.
HOOD’s consensus revenue estimate of $1.37 billion for fiscal 2022, ending December 2022, represents a decline of 24.5% year-over-year, while its EPS is expected to remain negative at least until fiscal 2024.
The stock has plummeted 19.2% over the past month and 50.2% year-to-date to close the last trading session at $9.19.
HOOD’s fundamental weakness and unstable prospects are reflected in its POWR Ratings. It has an overall rating of D, which translates to a Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HOOD has a grade of F for Stability and a grade of D for Value and Quality. It is ranked #110 of 139 stocks in the F-rated Software - Application industry.
Additional ratings for HOOD’s Growth, Momentum, and Sentiment can be found here.
Monday.com Ltd. (MNDY)
MNDY is a software applications developer and publisher based in Israel. It provides Work OS, a cloud-based operating system, while also offering product solutions for project management, CRM, marketing, and other related fields.
During the nine months of the fiscal year ended September 30, 2022, MNDY’s non-GAAP operating loss widened 43.8% year-over-year to $61.37 million. During the same period, the company’s non-GAAP net loss came in at $55.58 million, worsening 18% year-over-year. Its $1.23 earnings per share deteriorated 15% year-over-year.
Analysts expect MNDY’s loss per share for the fourth quarter ending December 2022 to widen 38.5% year-over-year to $0.36. Its loss is expected to deteriorate 20.4% year-over-year for the entire fiscal year to $1.60. Moreover, the company is expected to keep reporting losses over the next two fiscals.
The stock has slumped 7.6% over the past month and 67.5% year-to-date to close the last trading session at $97.91.
MNDY’s poor prospects are reflected in an overall rating of D, which translates to a Sell in our POWR Ratings system. It has a grade of F for Stability and a D for Value and Momentum.
MNDY is ranked #103 of 139 stocks in the Software – Application industry.
Click here for MNDY’s ratings for Growth, Sentiment, and Quality.
Matterport, Inc. (MTTR)
MTTR is a datafication and digitization company. It primarily focuses on accessing, managing, and digitizing buildings, spaces, and places online by creating digital twins. The company serves residential and commercial real estate, facilities management, retail, architecture, engineering, and construction (AEC), insurance and repair, and travel and hospitality.
During the third quarter of the fiscal, ended September 30, MTTR’s loss from operations widened 33% year-over-year to $58.99 million. The company’s non-GAAP net loss worsened 91.9% year-over-year to $26.92 million during the same period. This translated to a non-GAAP quarterly net loss per share of $0.09, indicating a 50% year-over-year deterioration.
MTTR’s total assets stood at $660.41 million as of September 30, 2022, compared to $719.18 million as of December 31, 2021.
Analysts expect MTTR’s loss per share for the fiscal year ending December 2022 to widen 81.9% year-over-year to $0.42. Moreover, the company is expected to report losses over the next two fiscals.
The stock has slumped 12.3% over the past month and 84.1% year-to-date to close the last trading session at $3.11.
MTTR’s bleak prospects are reflected in its overall rating of F, which translates to a Strong Sell in our proprietary rating system. It has a grade of F for Quality and a D for Value, Momentum, and Stability.
MTTR is ranked #127 of 139 stocks in the same industry. Additional ratings for Growth and Sentiment for MTTR are available here.
Stock To Buy:
Progress Software Corporation (PRGS)
PRGS develops and deploys software to manage business applications. Moreover, the company provides implementation, project management, programming, custom development, and training services. A few of its popular offerings include OpenEdge, Sitefinity, Chef, MOVEit, and WhatsUp Gold.
On September 22, PRGS announced the extension of coverage of Progress’ policy-based Chef DevSecOps portfolio to India. Because of this expansion, Microsoft Azure will have greater access to all Progress Chef Products, further enabling them to boost their cloud migration operations and misconfigurations detection.
This remarkable move is expected to accelerate the sales of Progress Chef products and will consequently assist PRGS in multiplying its revenue.
For the nine months of the fiscal year ended August 31, PRGS reported a total revenue of $444.89 million, up 13.7% year-over-year. During the same period, the company’s operating income increased 6.2% year-over-year to $101.69 million. The company’s total current liability stood at $279.68 million as of August 31, 2022, compared to $322.93 million as of November 30, 2021.
Analysts expect PRGS’s revenue and EPS for fiscal 2022 to increase 9.9% and 5.8% year-over-year to $612.59 million and $4.09, respectively. Moreover, the company has surpassed consensus EPS estimates in each of the trailing four quarters.
The stock has gained 4.2% over the past month and 8.9% year-to-date to close the last trading session at $52.45.
PRGS has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value.
Unsurprisingly, PRGS ranks #5 in the same industry. Click here for additional ratings for PRGS’s Growth, Stability, Sentiment, and Momentum.
HOOD shares were trading at $9.09 per share on Tuesday afternoon, down $0.10 (-1.09%). Year-to-date, HOOD has declined -48.82%, versus a -15.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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