September’s stubborn inflation numbers paved the path for the Fed to follow up with a fourth consecutive interest rate hike of 75 basis points during its meeting next month. This could drive a fresh bout of volatility in the stock market.
This rising interest rate environment is expected to challenge fundamentally weak companies' survival. Cash-strapped firms may struggle to sustain their operations due to the funding drought and softening demand due to decreased discretionary spending by consumers.
Amid such macro headwinds, asset management firm Blackrock (BLK) has gone as far as saying that the Fed and other central banks have underestimated the severity of the recession that their rate hikes could trigger. Jean Boivin, head of Blackrock Investment Institute, said, "This all implies a clear sequence: overtighten policy first, significant economic damage second, and then signs of inflation easing only many months later.”
With more significant turbulence on the horizon, we think underperforming stocks Snowflake Inc. (SNOW) and Twitter, Inc. (TWTR) are best avoided now, as they might struggle to find support.
Snowflake Inc. (SNOW)
SNOW operates as a cloud data platform provider that enables customers to consolidate data into a single source to drive business insights, build data-driven applications and share data. By leveraging the performance of the public cloud, its platform enables customers to unify and query data to support a variety of use cases.
For the second quarter of the fiscal year 2023 ended July 31, SNOW’s operating loss and net loss widened 3.8% and 17.4% year-over-year to $207.73 and $222.81 million, respectively. The company’s quarterly loss per share worsened by 9.4% year-over-year to $0.70.
Analysts expect SNOW’s EPS for the fourth quarter of the current fiscal year (ending January 31, 2023) to decline 58.3% year-over-year to $0.05.
The stock has declined 7.4% over the past month and 48.5% year-to-date to close the last trading session at $171.04.
SNOW’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 are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNOW has a D grade for Value, Momentum, Stability, and Quality. It is ranked #69 out of 77 stocks in the D-rated Technology Services industry.
Click here to see the other ratings of SNOW for Growth and Sentiment.
Twitter, Inc. (TWTR)
TWTR operates primarily as a real-time platform that allows users to consume, create, distribute, and discover content. The company’s offerings for users, advertisers, developers, and data partners include Twitter, Promoted Ads, Twitter Amplify, Follower Ads, and Twitter Takeover.
Much of the headlines hogged by TWTR this year had to do with the months-long back-and-forth between the company and Elon Musk. Musk was offered to purchase TWTR back on April 14, 2022, after acquiring 9.1% of the company's stock for $2.64 billion and becoming its largest shareholder.
After trying to terminate the deal and being sued by the company for allegedly breaching the agreement, Musk is set to take TWTR private for $44 billion, as per the latest update. This saga has been a significant distraction for all stakeholders of the social media company, thereby impacting business performance.
For the second quarter of the fiscal year 2022 ended June 30, TWTR’s revenue came in at $1.18 billion, down 1.2% year-over-year. Its adjusted EBITDA came in at $111.70 million, down 67.5% year-over-year, while its non-GAAP net loss came in at $57.73 million, compared to an income of $174.52 million in the previous-year quarter.
As a result, TWTR’s non-GAAP loss per share came in at $0.08, compared to an EPS of $0.20 in the previous-year quarter.
TWTR’s EPS is expected to decline 24.2% year-over-year to $0.25 for the fiscal 2022 fourth quarter ending December 2022. The company’s EPS of $0.80 for the next year (ending December 2023) indicates a decline of 24% year-over-year. It missed the consensus EPS estimates in three of the trailing four quarters.
The stock has lost 21.6% over the past year to close the last trading session at $51.83
TWTR’s POWR Ratings reflect its poor prospects. It has an overall grade of D, which indicates a Sell in our proprietary rating system. It has a D grade for Value, Momentum, Stability, and Sentiment.
TWTR is ranked #47 out of 64 stocks in the F-rated Internet industry.
Click here to access the additional POWR Ratings for Growth and Quality for TWTR.
SNOW shares were trading at $178.62 per share on Thursday morning, up $7.58 (+4.43%). Year-to-date, SNOW has declined -47.27%, versus a -20.88% 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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