Amid rapid digitalization, the importance of the internet industry cannot be downplayed. The Internet of Things (IoT) market growth is driven by e-commerce platforms that are growing significantly due to shopping comfort and smartphone penetration.

While online retail sales increased in January 2023, high prices and consecutive federal rate hikes could hamper the growth of the sector.

Inflation rose in January by 0.5% following a 0.1% increase in December, and the CPI was up 6.4% from the same period in 2022. Economists surveyed by Dow Jones had expected respective gains of 0.4% and 6.2%. Moreover, Deutsche Bank has increased its U.S. terminal rate forecast to 5.6% from 5.1%.

In addition, 68% of American adults said they felt financially confident in Q4 2022, down from 79% in Q4 2021. The dip in consumers’ financial confidence is expected to affect aggregate demand, which might not bode well for the industry.

So, it could be wise to avoid fundamentally weak internet stocks Farfetch Limited (FTCH), ContextLogic Inc. (WISH), and Groupon, Inc. (GRPN) in 2023.

Farfetch Limited (FTCH)

Headquartered in London, the United Kingdom, FTCH and its subsidiaries operate an online marketplace for luxury fashion goods in the United States, the United Kingdom, and internationally. Its segments are Digital Platform; Brand Platform; and In-Store.

FTCH’s forward P/E of 31.97x is 102.4% higher than the industry average of 15.80x. Its forward Price/Book of 3.67x is 25.7% higher than the industry average of 2.92x.

Its trailing-12-month negative EBITDA and levered FCF margins of 16.23% and 5.26% are lower than the industry averages of 11.09% and 1.36%.

FTCH’s Brand Platform Revenue came in at $161.84 million for the third quarter that ended September 30, 2022, down 2.1% year-over-year. Its adjusted EBITDA came in at negative $4.11 million, compared to $5.31 million in the previous period. Also, its adjusted loss per share increased 71.4% year-over-year to $0.24.

FTCH’s revenue is expected to decrease 6.3% year-over-year to $623.80 million for the yet-to-be-reported quarter ending December 2022. Its EPS is expected to decline substantially year-over-year to negative $0.47 for the same period. Over the past year, the stock has lost 71.6% to close the last trading session at $5.77.

FTCH’s POWR Ratings reflect its poor prospects. It has an overall grade of F, which equates to a Strong Sell. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

Also, the stock has an F grade for Growth and a D for Value, Stability, and Sentiment. FTCH is ranked #60 out of 61 stocks in the F-rated Internet industry. Click here to access the additional POWR Ratings for FTCH (Momentum and Quality).

ContextLogic Inc. (WISH)

WISH operates as a mobile e-commerce company in Europe, North America, South America, and internationally. The company operates Wish, an e-commerce platform that connects users to merchants.

WISH’s trailing-12-month negative EBITDA and net income margins of 41.52% and 45.05% compare with the industry averages of 11.09% and 4.81%.

WISH’s revenue came in at $125 million for the third quarter that ended September 30, 2022, down 66% year-over-year. Its adjusted EBITDA came in at negative $95 million, compared to negative $30 million in the prior-year period. Moreover, its loss per share increased 80% year-over-year to $0.18.

Analysts expect WISH’s revenue and EPS to fall 47.4% and 100% year-over-year to $152.02 million and negative $0.18 for the yet-to-be-reported quarter ending December 2022. Over the past year, the stock has lost 64.3% to close the last trading session at $0.95.

WISH’s overall F grade equates to a Strong Sell in our proprietary rating system. Also, the stock has an F grade for Stability and a D for Growth and Quality. It is ranked #58 in the same industry.

Get the additional POWR Ratings for WISH (Value, Momentum, and Sentiment) here.

Groupon, Inc. (GRPN)

GRPN and its subsidiaries operate a marketplace that connects consumers to merchants. It operates in two segments, North America and International.     

GRPN’s forward Price/Book of 3.27x is 13.3% higher than the industry’s average of 2.89x.

GRPN’s trailing-12-month negative EBITDA and net income margins of 8.20% and 22.69% are lower than the industry averages of 11.09% and 4.81%.

GRPN’s total revenue came in at $144.39 million for the third quarter that ended September 30, 2022, down 32.6% year-over-year. Its non-GAAP net loss came in at $20.64 million, compared to an income of $12.53 million in the prior-year period, while its non-GAAP loss per share came in at $0.68, compared to an EPS of $0.38 in the year-ago period.

Street expects GRPN’s revenue to decline 27.6% year-over-year to $161.55 million for the yet-to-be-reported quarter ending December 2022. Its EPS is expected to decrease 322.2% year-over-year to negative $0.40 for the same period. It missed EPS estimates in three of four trailing quarters. Over the past year, the stock has lost 71.2% to close the last trading session at $7.75.

GRPN’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. In addition, the stock has an F grade for Stability and Sentiment and a D for Growth and Momentum.

It is ranked #52 in the same industry. We also have graded GRPN for Value and Quality. Click here to access all of GRPN’s ratings.

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FTCH shares were unchanged in premarket trading Thursday. Year-to-date, FTCH has gained 21.99%, versus a 8.25% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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