3 Stocks to Avoid After Releasing Disappointing Earnings Reports

Even though more people are getting vaccinated, the rapid spread of the highly contagious COVID-19 Delta variant is worrying investors. Consequently, several countries are re-imposing restrictions to curb the virus’ spread. For example, China imposed strict international travel restrictions on August 4 after reporting its highest daily number of COVID-19 infections in the past few months. Also, the United States’ CDC revised its mask guidance  last month.

Nevertheless, the major stock market indexes are hovering around all-time highs thanks to strong corporate earnings. According to a Factset report, more S&P 500 companies beat EPS estimates for the second quarter than the historical average and they also beat EPS estimates by a wider margin than on average.

However, not every company reported impressive earnings results. Etsy, Inc. (ETSY), Fiverr International Ltd. (FVRR), and Fastly, Inc. (FSLY) reported disappointing second-quarter results last week, and their shares declined  as a result. So, we think it’s best to avoid these three stocks now.

Etsy, Inc. (ETSY)

With its motto ‘Keep Commerce Human,’ ETSY in Brooklyn, N.Y. operates two-sided online marketplaces that connect buyers and sellers, primarily in the United States, the United Kingdom, France, and India. Its online marketplaces include Etsy.com and Reverb.com.

The company completed the acquisition of Depop on July 13. Depop is a community-powered, purpose-driven marketplace to buy and sell unique fashion. However, the acquisition  could take a toll on ETSY’s already weak financials.

ETSY’s GMS declined 3.2% sequentially to $3.04 billion for the second quarter, ended June 30, 2021. The company’s revenue decreased 3.9% sequentially to $528.90 million. Its net income came in at $98.25 million, down 31.7% sequentially, while its EPS declined 9.3% year-over-year to $0.68. Its non-GAAP EBITDA decreased 7.4% year-over-year to $139.47 million.

For the current quarter, ending September 30, 2021, ETSY’s revenue is expected to increase 14.7% year-over-year to $517.73 million. However, its EPS is expected to decline 26.4% year-over-year to $0.68 in the current quarter. The stock has lost 22.8% over the past six months and 5.5% since reporting its second-quarter earnings results on August 4, to close Friday’s trading session at $178.36.

ETSY’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which translates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

ETSY has a D grade for Growth, Value, Stability, and Sentiment. Of the 74-stocks in the F-rated Internet industry, it is ranked #52. In addition to the POWR Ratings grades we’ve just highlighted, one can see the ETSY’s ratings for Momentum and Quality here.

Fiverr International Ltd. (FVRR)

Headquartered in Tel Aviv, Israel, FVRR is an online marketplace worldwide. The company’s platform helps connect businesses of all sizes with skilled freelancers offering digital services in more than 500 categories across nine verticals, including graphic design, digital marketing, programming, video, and animation.

On August 4, FVRR and Wix.com Ltd. (WIX) formed  a partnership to provide a unique program where experts from WIX will train people with disabilities to build accessible websites. However, this partnership will take a toll on the company’s expenses despite making the web more accessible to a broader consumer base.

For the second quarter, ended June 30, 2021, FVRR’s revenue increased 10.2% sequentially to $75.26 million. However, the company’s operating loss for the quarter increased 1,295.3% year-over-year to $8.34 million. Its net loss came in at $13.30 million versus  $124,000 in the prior-year period. Its total liabilities in the quarter were  $549.87 million compared to $515.80 million for the quarter ended December 31, 2020.

FVRR’s revenue is expected to increase 30.2% year-over-year to $72.78 million for the quarter ending December 31, 2021. However, its EPS is expected to decline 92.1% year-over-year to $0.01 in the same quarter. The stock has lost 30.3% over the past month to close Friday’s trading session at $168.52. Furthermore, it retreated by  27.2% since reporting its second-quarter earnings results on August 5.

FVRR’s weak prospects are apparent in its POWR Ratings also. The stock has an overall D rating, equating to a Sell in our proprietary rating system. FVRR also has a D grade for Stability, Value, and Quality.

FVRR is ranked #69 in the Internet industry. To see additional POWR Ratings for Growth, Sentiment, and Momentum for FVRR, click here.

Fastly, Inc. (FSLY)

Real-time content delivery network (CDN) company FSLY provides services in delivery, security, streaming media, e-commerce, and private CDN. In addition, the San Francisco-based company offers edge security solutions, such as DDoS protection and unified web application and API protection solutions.

This month, many news outlets,  including The New York Times, Financial Times, and online platforms, such as Twitch, Pinterest, and Reddit, were affected by a service disruption caused by FSLY. A company spokesperson said: “We identified a service configuration that triggered disruptions across our POPs globally and have disabled that configuration.”

FSLY’s revenue increased 13.9% year-over-year to $85.03 million for the second quarter, ended June 30, 2021. However, the company’s gross profit for the quarter came in at $44.71 million compared to $44.97 million in the year-ago period. Its loss from operations increased 298% year-over-year to $57.47 million. Its net loss increased 303.1% year-over-year to $58.30 million, while its loss per share came in at $0.51, up 264.3% year-over-year.

Analysts expect FSLY’s revenue to increase 18.9% year-over-year to $345.78 million in its fiscal year 2021. However, its EPS is expected to decline 361.6% year-over-year for the quarter ending September 30, 2021. The stock has lost 27.5% over the past month and 9.4% since  its latest quarterly report on August 4, to close Friday’s trading session at $41.24.

It’s no surprise that FSLY has an overall F rating, which equates to Strong Sell in our POWR Ratings system. Also, the stock has a D grade for Growth, Value, and Stability, and an F grade for Sentiment and Quality. Click here to see FSLY’s rating for Momentum as well in the Software – Application industry..

Click here to check out our Software Industry Report for 2021

ETSY shares were trading at $181.84 per share on Monday morning, up $3.48 (+1.95%). Year-to-date, ETSY has gained 2.21%, versus a 18.91% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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