The Internet industry thrived, thanks to the paradigm shift following the COVID-19 pandemic. However, the weak macroeconomic environment spells trouble for companies that expanded exponentially to capitalize on the pandemic-led opportunities. Many such companies are now struggling with high costs and fierce competition.
According to Statista, internet users in the United States have grown from 288 million in 2020 to 299 million in 2022. However, the Fed’s aggressive interest rate hikes to tame the surging inflation has put pressure on high-growth Internet stocks.
While rising interest rates make borrowing expensive, increasing recession fears have reduced advertising spending, a key source of revenue for many internet stocks. Investors’ declining interest in Internet stocks is evident from the SPDR S&P Internet ETF’s (XWEB) 52.3% loss year-to-date.
Thus, fundamentally weak internet stocks Snap Inc. (SNAP), ContextLogic Inc. (WISH), and Groupon, Inc. (GRPN) might turn out to be losing picks for investors.
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.
SNAP’s operating loss widened 140.7% year-over-year to $435.24 million for the third quarter ended September 30, 2022. The company’s adjusted EBITDA declined 58.3% year-over-year to $72.64 million. Its non-GAAP net income decreased 50.8% year-over-year to $132.06 million. In addition, its non-GAAP EPS declined 52.9% year-over-year to $0.08.
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 81% to close the last trading session at $10.25.
SNAP’s POWR Ratings reflect its weak prospects. 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 #56 out of 63 stocks. The company has an F grade for Growth and a D for Momentum, Stability, Sentiment, and Quality.
Click here to see the rating of SNAP for Value
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 total assets for the second quarter ended June 30, 2022, declined 19.9% to $1.03 billion, compared to $1.28 billion for the fiscal year ended December 31, 2022. The company’s revenue declined 79.6% year-over-year to $134 million, while its gross profit declined 89.1% from the prior-year quarter to $42 million.
Additionally, its net loss per share came in at $0.13, while its non-GAAP net loss came in at $58 million.
Analysts expect WISH’s EPS for the quarter ended September 30, 2022, to remain negative. Its revenue for the quarter ended September 30, 2022, is expected to decline 57.6% year-over-year to $155.98 million. Over the past year, the stock has fallen 86% to close the last trading session at $0.76.
WISH’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 #51 in the same industry. It has an F grade for Stability and a D for Quality.
We have also given WISH grades for Growth, Value, Momentum, and Sentiment. Get all WISH ratings here.
Groupon, Inc. (GRPN)
GRPN operates a marketplace that connects consumers to merchants. It operates in two segments, North America and International. The company sells goods or services on behalf of third-party merchants and first-party goods inventory.
For the fiscal second quarter ended June 30, 2022, GRPN’s total revenue declined 42.4% year-over-year to $153.21 million, while its gross profit declined 30.9% year-over-year to $133.97 million. Its non-GAAP net loss came in at $9.17 million, compared to a non-GAAP net income of $10.91 million in the year-ago period.
In addition, its non-GAAP loss per share came in at $0.34, compared to a non-GAAP EPS of $0.33 in the prior-year quarter.
GRPN’s revenue and EPS for the quarter ended September 30, 2022, are expected to decline 26.6% and 239.5% year-over-year to $156.42 million and $0.53, respectively. Over the past month, the stock has fallen 66% to close the last trading session at $7.71.
GRPN’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 #50. In addition, it has an F grade for Stability and a D for Growth, Momentum, and Sentiment.
Click here to see the other ratings of GRPN for Value and Quality.
SNAP shares were trading at $9.79 per share on Wednesday afternoon, down $0.46 (-4.49%). Year-to-date, SNAP has declined -79.18%, versus a -19.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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