Looming interest rate hikes and rising geopolitical tensions between the U.S. and Russia over Ukraine have caused major market indexes to retreat since last month. Tech stocks have faced the brunt of the wild price swings since the beginning of the year, as evidenced by the benchmark Nasdaq Composite index’s 13.8% decline year-to-date.

Despite the broader market weakness, software solutions remain in high demand as companies invest in digitization to keep their processes efficient. The need for advanced-technology integrated software solutions is increasing. According to Statista, revenue in the software market is expected to reach $824.85 billion by 2026, growing at a 7.4% CAGR.

However, not all software stocks look well placed to exploit the industry tailwinds. Software stocks AppLovin Corporation (APP - Get Rating), Amplitude, Inc. (AMPL - Get Rating), and Fastly, Inc. (FSLY - Get Rating) anticipate lower-than-expected revenue and earnings growth. APP announced that it expects its full-year revenue to come between $3.55 billion and $3.85 billion, below the FactSet analysts’ estimate of $3.83 billion. Also, AMPL’s revenue estimates for the first quarter and fiscal 2022 fell well short of analysts’ estimates. The company expected its first-quarter revenue to be between $50 million and $51 million, compared to the analysts’ estimate of $51.30 million. For its fiscal year 2022, its revenue expectations were projected to come in between $226 million and $234 million, falling short of the analysts’ estimate of $235.80 million. According to analysts, FSLY’s revenue for 2022 was estimated at $417.20 million, but the company expects its revenues to be between $400 million and $410 million.

Click here to check out our Software Industry Report for 2022

Given this backdrop, it could be wise to avoid these stocks in the next term.

AppLovin Corporation (APP - Get Rating)

APP in Palo Alto, Calif., is a mobile application technology company that is focused on growing the mobile application ecosystem by enabling the success of mobile app developers. Its software solutions provide tools for mobile app developers to grow their businesses by automating and optimizing the marketing and monetization of their apps. The company’s software comprises three solutions, AppDiscovery, MAX, and Compass.

APP’s cost of revenue increased 33.8% year-over-year to $265.12 million for the fourth quarter, ended December 31, 2021. The company’s sales and marketing expenses increased 48.8% year-over-year to $313.69 million. Also, its long-term debt for its fiscal year ended Dec. 31, 2021, increased 102.1% year-over-year to $3.20 billion.

Over the past three months, the stock has declined 40% in price to close the last trading session at $57.33.

APP’s weak prospects are reflected in its POWR Ratings. It has a D grade for Momentum and Stability.

APP is ranked #57 out of 164 stocks in the F-rated Software – Application industry. Click here to see the other ratings of APP for Growth, Value, Sentiment, and Quality.

Amplitude, Inc. (AMPL - Get Rating)

San Francisco-based AMPL is a software company that is developing a category of software called Digital Optimization. The company’s Digital Optimization System serves as the command center for businesses to connect digital products to business outcomes. It enables users to track user behavior in real-time and analyze what experiences improve retention.

For its fiscal fourth quarter, ended Dec. 31, 2021, AMPL’s cost of revenue increased 67.2% year-over-year to $15.39 million. The company’s operating expenses increased 113.6% year-over-year to $55.51 million. Also, its net loss widened 307.8% year-over-year to $21.90 million.

Analysts expect AMPL’s EPS to remain negative this year and next year. Over the past three months, the stock has declined 69.2% in price to close the last trading session at $20.67.

AMPL’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, which equates to a Sell in our proprietary rating system.

It has a D grade for Growth, Momentum, and Stability. It is ranked #128 in the Software – Application industry. To see the additional ratings of AMPL for Value, Sentiment, and Quality, click here.

Fastly, Inc. (FSLY - Get Rating)

FSLY is a real-time content delivery network (CDN) company. The San Francisco company provides delivery, security, streaming media, e-commerce, and private CDN services.

FSLY’s non-GAAP operating loss widened 30.9% year-over-year to $11.73 million. The company’s non-GAAP loss per share widened 11.1% year-over-year to $0.10. In addition, its operating expenses increased 0.1% year-over-year to $106.42 million.

Analysts expect its EPS to remain negative this year and next year. Over the past year, the stock has declined 75.2% in price to close the last trading session at $18.94.

FSLY’s POWR Ratings reflect these bleak prospects. It has an overall F rating, equating to a Strong Sell in our proprietary rating system.

It has an F grade for Quality and a D grade for Value, Stability, and Sentiment. In the Software – Application industry, it is ranked #157. Click here to see the other ratings of FSLY for Growth and Momentum.

Click here to check out our Software Industry Report for 2022

APP shares were trading at $56.37 per share on Wednesday morning, down $0.96 (-1.67%). Year-to-date, APP has declined -40.20%, versus a -10.07% 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. More...

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