Private messaging application company DatChat Inc. (DATS - Get Rating) in New Brunswick, N.J., raised nearly 11.04 million in its stock market debut on Aug. 13, 2021. This month, the company announced the development of a Web 3.0 platform. According to an official release, the platform will “use DatChat technology as the foundation for a decentralized advertising network for Web 3.0 and Metaverse applications.”

However, the stock has slumped 70.7% in price over the past three months and 21.8% over the past month. Closing yesterday’s trading session at $2.65, the stock is currently trading 85.7% below its $18.50 all-time high, which it hit on Sept. 29, 2021.

Though the company’s recent announcement related to its Letter of Intent to acquire Avila Security Corporation to expand its intellectual property assets to include blockchain-based digital rights management and object sharing technology could bode well for the stock in the long term, the company’s lack of a consumer base and absence of revenue pose major risks to its current price performance.

Here is what could shape DATS’ performance in the near term:

Disappointing Financials

DATS’ operating expenses increased 486.3% year-over-year to $1.85 million for the third quarter, ended Sept. 30, 2021. The company’s net loss grew 461% from the year-ago value to $1.85 million, while its loss per share increased 500% year-over-year to $0.12. In addition, its net cash used in operating activities came in at $2.52 million, representing a 226% increase for the nine months ended Sept. 30, 2021.

POWR Ratings Reflect Uncertainty

DATS has a D overall rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. DATS has a D grade for Momentum and a C for Growth and Quality. The stock is currently trading below its 50-day and 200-day moving averages of $3.76 and $3.56, respectively, which is consistent with the Momentum grade. In addition, the company’s weak financials are in sync with the Growth and Quality grade.

Among 164 stocks in the F-rated Software – Application industry, DATS is ranked #118.

Beyond what I have stated above, you can view DATS ratings for Value, Sentiment, and Stability here.

Bottom Line

Although DATS strategies to gain a competitive advantage and bolster its position as a prominent player in Web 3.0 and Metaverse e-commerce, advertising, and messaging space should bode well for the stock in the long term, the company has yet to produce any meaningful revenue. Furthermore, its reliance on the smartphone industry, which is prone to quick technological developments, endangers its long-term prospects. So, we think the stock is best avoided now.

How Does DatChat Inc. (DATS) Stack Up Against its Peers?

While DATS has an overall D rating, one might want to consider its industry peers, Open Text Corporation (OTEX - Get Rating), SAP SE ADS (SAP - Get Rating), and National Instruments Corporation (NATI - Get Rating), which have an overall A (Strong Buy) rating.

DATS shares fell $0.11 (-4.15%) in premarket trading Tuesday. Year-to-date, DATS has declined -12.54%, versus a -7.39% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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