The raging inflation and the Fed’s aggressive rate hikes has led advertisers to cut back on spending, which is, in turn affecting social media companies. With the Fed expected to launch another significant rate hike this month, we think investors should avoid Twitter (TWTR), Snap (SNAP), and Groupon (GRPN). Read on….
The Consumer Price Index (CPI) report came in hotter than expected, with inflation rising 8.3% in August. This could prompt the Fed to continue its rate hikes, with several analysts now expecting a 100-basis point hike next week.
Social media companies have been struggling as advertisers pared back spending amid the rate hikes and surging inflation. “If you want proof that companies are nervous about the economic outlook, just look at how media platforms and marketing agencies are bemoaning a tougher advertising market,” Russ Mould, AJ Bell investment director, said.
Twitter, Inc. (TWTR)
TWTR operates as a popular platform for public self-expression and conversation in real-time. The company also provides promoted products that enable advertisers to promote brands, products, and services.
On July 8, TWTR received a purported termination notice from Elon Musk. In response, the Board issued the following statement – “We are committed to closing the transaction on the price and terms agreed upon with Mr. Musk and plan to pursue legal action to enforce the merger agreement. We are confident we will prevail in the Delaware Court of Chancery.”
For the fiscal quarter ended June 30, 2022, TWTR’s revenue decreased 1.2% year-over-year to $1.18 billion. Income from operations came in at a negative of $343.76 million, decreasing 1,236.3% from the prior-year period. The company’s net income and net income per share came in at negative $270.01 million and negative $0.35, respectively, down 511.3% and 537.5% from the prior-year period.
Street EPS estimate of $0.25 for the fiscal fourth quarter ending December 2022 reflects a 25.2% year-over-year decrease. TWTR missed the street EPS estimates in three of the trailing four quarters.
The stock has slumped 30% over the past year and 5.7% over the past month to close the last trading session at $41.74.
TWTR’s POWR Ratings reflect this bleak outlook. 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.
TWTR has an F grade for Sentiment and a D for Momentum. It is ranked #45 of 64 stocks in the F-rated Internet industry. Click here to see the additional POWR Ratings for Growth, Value, Stability, and Quality for TWTR.
Snap Inc. (SNAP)
SNAP operates as a camera company internationally. It offers Snapchat, an application that enables people to communicate visually through short videos and images.
For the fiscal second quarter ended June 30, SNAP’s total cost and expenses increased 28.7% from its prior-year quarter to $1.51 billion. Adjusted EBITDA declined 93.9% from the prior-year quarter to $7.19 million. Non-GAAP net loss and net loss per share came in at $29.60 million and $0.02, respectively, indicating an increase of 120.5% and 120% year-over-year.
Analysts expect SNAP’s EPS to decline 50.2% year-over-year to $0.11 for the fiscal quarter ending December 2022. Its consensus revenue estimate is expected to be $1.36 billion in the same period.
The stock has declined 83.5% over the past year and 75.6% over the past nine months to close its last trading session at $11.77.
The stock has an overall F rating, equating to a Strong Sell in our POWR Ratings system. SNAP also has an F grade in Stability and Sentiment and a D in Growth, Momentum, and Quality. It is ranked #58 in the Internet industry.
In addition to the POWR Rating grades we’ve stated above, you can see SNAP’s rating for Value here.
Groupon, Inc. (GRPN)
GRPN is a marketplace operator that connects merchants to consumers. It offers services on behalf of third-party merchants and serves customers through its website and mobile applications. The company operates through two broad segments- North America and International.
GRPN’s total revenue decreased 42.4% year-over-year to $153.22 million in the fiscal quarter ended June 30, 2022. Net income attributable to GRPN declined 2,597.4% from the prior-year quarter to a negative $91.23 million. Net income per share came in at a negative $3.04, down 2,433.3% from the same period the prior year.
The consensus EPS estimate of $0.04 for the fiscal quarter ending December 2022 indicates a 95.6% year-over-year decrease. Likewise, the consensus revenue estimate of $184.31 million reflects a decline of 17.4% in the same period.
GRPN’s stock slumped 47.5% year-to-date to close the last trading session at $12.16.
It is no surprise that GRPN has an overall rating of D, equating to Sell in our POWR Ratings system. It has a Sentiment and Stability grade of F and a Momentum and Growth grade of D.
In the same industry, GRPN is ranked #53. Click here to see the additional POWR Ratings for GRPN (Value and Quality).
TWTR shares were trading at $41.71 per share on Wednesday afternoon, down $0.03 (-0.07%). Year-to-date, TWTR has declined -3.49%, versus a -16.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Komal Bhattar
Komal’s passion for the stock market and financial analysis led her to pursue investment research as a career. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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