The concerns over continuing supply chain disruptions, the Federal Reserve's tighter monetary policy to combat 40-year high inflation, and a potential slowdown in economic growth have dampened investor sentiment and triggered a broad equity market sell-off. Furthermore, the recent tech rout has dragged the tech-heavy Nasdaq Composite index down to record its worst monthly performance in April since 2008.
To deal with the uncertain economic conditions, struggling tech companies are laying people off, making substantial changes to their hiring practices, or cutting their spending. Given their weak financials, history of enormous losses, and bleak growth attributes, hard-hit tech stocks are expected to remain under severe pressure in the near term.
Against this backdrop, we think it advisable to avoid adding fundamentally weak stocks like Lyft, Inc. (LYFT), Netflix, Inc. (NFLX), and Uber Technologies, Inc. (UBER) to one's portfolio.
Lyft, Inc. (LYFT)
San Francisco-based LYFT owns and operates multimodal transportation networks in the U.S. and Canada that offer riders personalized and on-demand access to various transportation options. The company provides a ridesharing marketplace, which connects drivers to riders, Express Drive, a flexible car rentals program for drivers, Lyft Rentals, which provides vehicles for long-distance trips, and a network of shared bikes and scooters. In addition, it gives access to autonomous vehicles, centralized tools, and enterprise transportation solutions.
This month, LYFT addressed plans to slow hiring and cut costs in some departments as the company grapples with the turbulence hitting technology stocks. President John Zimmer told employees on May 14 that the company is not planning to lay off staff, but it will rein in new hiring. "We’re focused on accelerating profitable growth. We are also being responsible about costs and will significantly slow hiring,” he added.
In its fiscal 2022 first quarter, ended March 31, 2022, LYFT's total costs and expenses increased 4.8% year-over-year to $1.07 billion. Its loss from operations came in at $199.34 million for the first quarter. In addition, the company's net loss and net loss per share amounted to $196.93 million and $0.57, respectively. As of March 31, 2022, its cash and cash equivalents came in at $214.87 million, compared to $457.33 million as of Dec. 31, 2022.
The Street expects LYFT's loss per share to amount to $0.05 for its fiscal 2022 second quarter, ending June 30, 2022, representing an increase of 7.4% year-over-year. It is no surprise that the company has missed the consensus EPS estimates in three of the trailing four quarters.
Shares of LYFT have plunged 57.5% in price over the past six months and 68% over the past year and closed Friday's trading session at $17.77.
LYFT's POWR Ratings are consistent with this bleak outlook. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
LYFT has a D grade for Stability and Sentiment. Within the Technology - Services industry, it is ranked #45 of 81 stocks.
To see LYFT's POWR Ratings for Growth, Value, Quality, and Momentum, click here.
Netflix, Inc. (NFLX)
NFLX in Los Gatos, Calif., offers entertainment services. The company provides TV series, feature films, documentaries, and mobile games across various genres and languages. It allows members to receive streaming content through internet-connected devices, including TVs, television set-top boxes, digital video players, and mobile devices. In addition, it offers DVDs-by-mail membership services in the U.S. It has more than 222 million paid members in 190 countries.
On May 17, NFLX laid off about 150 employees as the company focuses now on cutting costs following a historic decline in subscribers. It reported a loss of 200,000 subscribers in its fiscal 2022 first quarter. This is the second round of layoffs at the company and is directly tied to a slowdown in NFLX’s revenue growth and increased competition.
NFLX's cost of revenues increased 10.8% year-over-year to $4.28 billion, and its interest expense came in at $187.58 million in its fiscal 2022 first quarter, ended March 31, 2022. Its income before income taxes declined 2.7% from its year-ago value to $1.98 billion. Also, the company's net income and earnings per share came in at $1.58 billion and $3.53, respectively, registering a decrease of 6.4% and 5.9% year-over-year.
The $2.81 consensus EPS estimate for its fiscal 2022 third quarter, ending Sept. 30, 2022, represents an 11.8% year-over-year decline from the same period in 2021.
The stock has declined 67.3% year-to-date and 61.3% over the past year to close Friday's trading session at $195.19.
NFLX's POWR Ratings reflect its poor prospects. The stock has a D grade for Momentum. It is ranked #14 of 69 stocks in the F-rated Internet industry.
To see additional POWR Ratings (Growth, Sentiment, Stability, Value, and Quality) for NFLX, click here.
Uber Technologies, Inc. (UBER)
San Francisco-based UBER develops and operates proprietary technology applications in the U.S., Canada, Latin America, Europe, the Middle East, Africa, and the Asia Pacific. The company operates through three segments: Mobility; Delivery; and Freight. It connects consumers with providers of ride services, merchants, and other food delivery services. In addition, it connects carriers with shippers on its platform, gives carriers upfront, and enables them to book a shipment.
On May 9, UBER announced that it was cutting back on spending to achieve profitability. “To address the shift in economic sentiment, the ride-hailing firm will slash spending on marketing and incentives and treat hiring as a “privilege.” The least efficient marketing and incentive spend will be pulled back. We will treat hiring as a privilege and be deliberate about when and where we add headcount. We will be even more hardcore about costs across the board,” said UBER’s CEO Dara Khosrowshahi.
In its fiscal 2022 first quarter, ended March 31, 2022, UBER's total costs and expenses increased 6 5.7% year-over-year to $4.43 billion. Its loss from operations came in at $482 million, and its loss before income taxes and loss from equity method investments amounted to $6.17 billion. The company's net loss attributable to UBER and net loss per share attributable to UBER common stockholders came in at $5.93 billion and $3.04, respectively, registering an increase of 5,390.7% and 4,966.7% year-over-year.
Analysts expect UBER's loss per share to amount to $3.57 for its fiscal 2022, ending Dec.31, 2022, representing a rise of 1,274.4% from the same period last year. The stock has decreased 40.4% in price over the past six months and 53.3% over the past year and closed Friday's trading session at $23.67. Its year-to-date decline translates to 46.1%.
UBER’s POWR Ratings reflect this bleak outlook. It has a D grade for Value, Stability, and Sentiment. Within the Technology - Services industry, it is ranked #65 of 81 stocks.
To see additional POWR Ratings (Growth, Momentum, and Quality) for UBER, click here.
LYFT shares were trading at $17.80 per share on Tuesday afternoon, up $0.03 (+0.17%). Year-to-date, LYFT has declined -58.34%, versus a -12.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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