The macroeconomic and geopolitical headwinds have affected the stock market this year. The Fed’s aggressive interest rate hikes have significantly affected high-growth tech stocks.
The tech-heavy Nasdaq Composite has fallen 28.5% year-to-date. Several Internet stocks have missed earnings estimates due to macroeconomic challenges. And many of them have recently announced layoffs and hiring freezes to cut costs.
Fed Chairman Powell has cautioned that the final level of interest rates will be higher than expected, leading many economists to believe that the economy will be in recession next year. A recession may further affect the profitability of internet companies as corporations reduce ad spending and consumers avoid discretionary expenditure.
Given this backdrop, it could be wise to sell fundamentally weak Internet stocks Snap Inc. (SNAP), IAC Inc. (IAC), Zhihu Inc. (ZH), and ContextLogic Inc. (WISH).
Snap Inc. (SNAP)
SNAP operates as an international camera company. It offers Snapchat, the popular camera application that enables people to communicate visually through short videos and images. It provides Spectacles, an eyewear product that connects with Snapchat, and offers advertising products.
For the fiscal third quarter ended September 30, 2022, SNAP’s non-GAAP net income declined 50.8% year-over-year to $132.06 million. Its adjusted EBITDA declined 58.3% year-over-year to $72.64 million, while its non-GAAP EPS came in at $0.08, representing a 52.9% decline from the prior-year quarter.
SNAP’s EPS for the quarter ending December 31, 2022, is expected to decline 45.8% year-over-year to $0.12. Over the past year, the stock has fallen 79.9% to close the last trading session at $11.07.
SNAP’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
Within the F-rated Internet industry, it is ranked #53 out of 59 stocks. The company has an F grade for Growth and a D for Momentum, Stability, Sentiment, and Quality.
Click here to see SNAP’s rating for Value.
IAC Inc. (IAC)
IAC operates as a media and internet company worldwide. The company publishes original and engaging digital content in the form of articles, illustrations, videos, and images. It also operates a digital marketplace that connects home service professionals with consumers under the Angi Ads, Angi Leads, and Angi Services brands.
IAC’s total assets for the fiscal third quarter ended September 30, 2022, declined 15.1% to $10.44 billion, compared to $12.30 billion for the fiscal year ended December 31, 2021. Its total operating loss widened 288.8% year-over-year to $124.68 million, while its total operating costs and expenses increased 49.1% year-over-year to $1.42 billion.
Its net loss attributable to IAC shareholders came in at $63.82 million, compared to net income attributable to IAC shareholders of $60.69 million. Additionally, its loss per share came in at $0.74, compared to an EPS of $0.65.
IAC’s EPS for the quarter ending December 31, 2022, is expected to be negative at $0.17. Its revenue for the quarter ending March 31, 2023, is expected to decline 7.1% year-over-year to $1.23 billion. Over the past year, the stock has fallen 64% to close the last trading session at $49.45.
IAC’s grim outlook is reflected in its POWR Ratings. The stock has an overall rating of D, which translates to a Sell in our proprietary rating system. It is ranked #45 in the same industry. It has a D grade for Growth, Momentum, and Stability.
We have also given IAC grades for Value, Sentiment, and Quality. Get all the IAC ratings here.
Zhihu Inc. (ZH)
Headquartered in Beijing, the People's Republic of China, ZH operates an online content community in China. Its community allows people to seek inspiration, find solutions, make decisions, and have fun.
For the fiscal second quarter ended June 30, 2022, ZH’s total assets declined 13.7% to RMB7.19 billion ($1.01 billion), compared to RMB8.33 billion ($1.17 billion) for the fiscal year ended December 31, 2021.
The company’s loss from operations widened 31.4% year-over-year to RMB460.65 million ($65.04 million). Its adjusted net loss widened 121.5% year-over-year to RMB443.78 million ($62.66 million). Additionally, its net loss per share widened 45.9% from the prior-year quarter to RMB1.59.
ZH’s loss per share for the quarter ended September 30, 2022, is expected to widen 366.7% year-over-year to $0.14. Its revenue for the same quarter is expected to decline 4.7% year-over-year to $122.92 million. Over the past year, the stock has fallen 85.3% to close the last trading session at $1.32.
ZH’s bleak prospects are reflected in its POWR Ratings. The company has an overall rating of D, which equates to a Sell. In the Internet industry, it is ranked #46. In addition, it has a D grade for Growth, Momentum, Stability, and Quality.
Click here to see the other ratings of ZH for Value and Sentiment.
ContextLogic Inc. (WISH)
WISH operates as a mobile e-commerce company worldwide. It operates Wish, an e-commerce platform that connects users to merchants. The company also provides marketplace and logistics services to merchants.
WISH’s revenue for the third quarter ended September 30, 2022, declined 66% year-over-year to $125 million. The company’s net loss widened 93.8% from the prior-year period to $124 million. Moreover, its adjusted EBITDA loss widened 216.7% year-over-year to $95 million, while its net loss per share widened 80% from the prior-year quarter to $0.18.
Analysts expect WISH’s EPS for the quarter ending December 31, 2022, to remain negative. Its revenue for the quarter ended December 31, 2022, is expected to decline 48% year-over-year to $150.40 million. Over the past year, the stock has fallen 85.3% to close the last trading session at $0.75.
WISH’s grim outlook is reflected in its POWR Ratings. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. It is ranked #54 in the same industry. It has an F grade for Stability and a D for Growth and Quality.
To see the other ratings of WISH for Value, Momentum, and Sentiment, click here.
SNAP shares were trading at $10.93 per share on Thursday afternoon, down $0.14 (-1.26%). Year-to-date, SNAP has declined -76.76%, versus a -16.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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