The less-than-ideal fundamentals of Snap Inc. (SNAP), Meta Materials Inc. (MMAT), and SAI.TECH Global Corporation (SAI) have increased the likelihood of negative surprises during the earnings season that could cement their notoriety for volatility.
Although March’s Producer Price Index (PPI) declined 0.5% from the prior month, registering its largest drop since April 2020, and the Consumer Price Index data has also indicated the cumulative effectiveness of interest-rate hikes by the Federal Reserve, analysts expect profits at S&P 500 companies to have declined 4.8% in the first quarter of 2023 from the year-earlier period.
With heavyweights such as Tesla, Inc. (TSLA) posting sharp fall in profits increasing the likelihood of a poor earnings season, fundamentally weak stocks, despite increased attention and wishful thinking from their backers, could experience significant volatility.
In the above context, let us look closely at the featured stocks.
Snap Inc. (SNAP)
SNAP is a global camera and social media global. The company provides Snapchat, a camera application that enables people to communicate visually through images and short videos. The company’s advertising products include Snap Ads and AR Ads.
On March 23, SNAP unveiled AR Enterprise Services (ARES) to enable businesses to integrate its Augmented Reality (AR) into their owned and operated channels with ease and at scale.
Although ARES’ inaugural offering for retail already has Goodr, Princess Polly, and Gobi Cashmere among its customers, persistent inflation and macroeconomic uncertainties could soften demand and slow discretionary expenditure. Hence, it might be a while before the benefit of ARES’ launch gets accrued to SNAP.
On August 31, 2022, SNAP announced its decision to lay off nearly 20% of its 6,400 employees. SNAP’s CEO Evan Spiegel said in a statement that the company is restructuring to focus on three strategic priorities: community growth, revenue growth, and augmented reality while sunsetting several projects.
In the fiscal 2022 fourth quarter ended December 31, 2022, SNAP’s operating loss widened from $25.13 million to $287.60 million. During the same period, its adjusted EBITDA declined 28.7% from the year-ago value to $233.28 million.
Furthermore, because of restructuring charges of $34 million, SNAP’s net quarterly net loss came in at $288.46 million, compared to an income of $22.55 million during the previous-year quarter.
This resulted in a 36.4% year-over-year decline in non-GAAP net income per share to $0.14.
Ahead of its earnings release on April 27, analysts expect SNAP revenue for the first quarter of the fiscal year (ending December 2023) to decline by 4.7% year-over-year to $1.01 billion. Moreover, it is also expected to incur a loss of $0.01 per share.
With average 10-day and 3-month volumes of 21.12 million and 33.16 million, respectively, the stock has gained 4.1% over the past month and 17.3% over the past three months to close the last trading session at $10.98.
However, with a 5-year beta of 1.20 and a significant spread between its 52-week high and low prices of $31.75 and $7.33, this unstable stock has lost 67.4% of its value over the past year.
SNAP’s POWR Ratings indicate its poor prospects. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. It also has a D grade for Growth, Stability, Sentiment, and Quality.
SNAP is ranked #56 of 60 stocks in the D-rated Internet industry. Click here for additional POWR Ratings for SNAP’s Value and Momentum.
Meta Materials Inc. (MMAT)
MMAT is involved in researching and developing metamaterial products, nanofabrication, and computational electromagnetics. Its technology platform enables brands to deliver products to customers in diverse industries, such as consumer electronics, fifth-generation (5G) communications, health and wellness, aerospace & defense, automotive, and clean energy.
On April 14, MMAT announced an underwritten public offering of 83,333,334 shares of its common stock and warrants to purchase up to the offered number of common stocks. The offering has been priced at $0.30 per share and accompanying warrant, the latter being exercisable immediately at an exercise price of $0.375 per share and set to expire five years following the date of issuance.
MMAT intends to use the gross proceeds from this offering, which are expected to be approximately $25 million, for working capital and general corporate purposes.
With debt financing becoming prohibitively expensive in an environment of increasing interest rates, MMAT’s recourse to stake dilution through the issue of additional equity to mobilize funds to keep itself afloat reflects negatively on its finances.
For the fourth quarter of the fiscal year that ended December 31, 2022, MMAT’s total revenue declined by 36.8% year-over-year to $1.45 million, while its gross profit declined by 56.6% year-over-year to $762.94 thousand. During the same period, the company’s loss from operation widened by 40.3% year-over-year to $24.04 million.
However, due to a one-time gain of $4.0 million resulting from the deconsolidation of the Next Bridge Hydrocarbons, Inc. assets and liabilities and the recording of the net estimated collectible value of notes receivable of $2.2 million due from Next Bridge Hydrocarbons, Inc., MMAT’s net loss narrowed by 48.5% to $15.21 million.
Moreover, due to a 55.7% increase in weighted average shares, MMAT’s loss per share narrowed by 69.2% year-over-year to $0.04. The company’s total assets came in at $408.92 million as of December 31, 2022, compared to $434.02 million as of December 31, 2021.
March 31, MMAT’s loss per share is expected to come in at $0.04 for the first quarter and $0.14 for the entire fiscal year 2023. The company is expected to keep incurring losses over the next two fiscals. Moreover, it disappointed investors by missing consensus EPS estimates in three of the trailing four quarters.
Despite its average 10-day volume of 17.22 million exceeding its average 3-month volume of 17.22 million, MMAT’s stock has slumped 60.8% over the past month and 75.8% over the past six months to close the last trading session at $0.20, below its 50-day and 200-day moving averages of $0.54 and $0.95, respectively.
The stock’s instability is evident from the wide gulf between its 52-week high and low prices of $2.34 and $0.20, respectively.
MMAT’s POWR Ratings are consistent with its unenviable outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
MMAT also has an F grade for Value, Stability, and Quality and a D for Sentiment. Unsurprisingly, MMAT is ranked penultimate of 42 stocks in the Technology- Electronics category.
Click here to access additional ratings for MMAT’s Growth and Momentum.
SAI.TECH Global Corporation (SAI)
SAI is a Singapore-based company that caters to the Bitcoin mining, power, and heating industries worldwide. The company’s specialized offerings include mining machine purchase, hosting, mining pool, and energy-saving technologies and solutions for digital asset mining customers.
On March 13, SAI announced that it had entered into a hosting service agreement for its newly purchased 420 Whatsminer M30s++ bitcoin mining machines in La Pechuga, Mexico. These mining machines have been fully plugged in and operating at full capacity since March 11, 2023.
This followed the company’s February 10 announcement of purchasing 420 Whatsminer M30s++ bitcoin mining machines from Cloud Ridge Technology Limited for $633,360, or approximately $14.50 per terahash for a self-mining utility.
Given the flagging interest and usage of cryptocurrencies amid rising interest rates and the increasing threat of regulation, the return on the above investments made by SAI remains a matter of concern.
For the fiscal year that ended December 31, 2022, SAI’s revenue and gross profit declined by 37.6% and 9.8% year-over-year to $10.64 million and $1.14 million, respectively. As a result, the company’s loss from operations came in at $7.47 million, while its net loss amounted to $8.85 million.
An average 10-day volume of 6.5 million, which was significantly above its average 3-month volume of 1.08 million, resulted in a surge of 223.8% in SAI’s stock price over the past month. However, despite the uptrend, this unstable stock is down 58% over the past year to close the last trading session at $4.21.
The stock’s lack of stability is further evident from the broad spread between its 52-week high and low prices of $12.60 and $1.00, respectively.
SAI has an overall rating of F which translates to a Strong Sell in our POWR Ratings system. It has an F grade for Quality and a D for Growth, Value, Momentum, and Stability.
SAI is ranked #100 of 104 stocks in the F-rated Financial Services (Enterprise) industry. Click here for all POWR Ratings of SAI.
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
SNAP shares were trading at $10.14 per share on Thursday afternoon, down $0.84 (-7.65%). Year-to-date, SNAP has gained 13.30%, versus a 8.11% 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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