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.
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.
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