The software industry has been one of the biggest beneficiaries of the COVID-19 pandemic as the demand for software and cloud computing reached all-time highs amid remote work and entertainment lifestyles. Furthermore, the rapid digital transformation of virtually all sectors is expected to drive this industry’s growth over an extended period.
However, rising investor optimism surrounding the tech industry has resulted in multiple start-ups entering the space. Wells Fargo Securities’ Chris Harvey characterized the software industry as being crowded. Also, with tech giants dominating the software space with breakthrough innovations and cost-effective software offerings, several lesser-known companies have been unable to capitalize on the rapid tech integration.
Given this backdrop, we think fundamentally weak software stocks ironSource Ltd. (IS), Support.com, Inc. (SPRT), Exela Technologies, Inc. (XELA), and Marin Software Incorporated (MRIN), which gained popularity amid the pandemic, are best avoided now.
ironSource Ltd. (IS)
IS is a business platform for app developers and mobile operators. The company’s operations occur through two platforms–Sonic solution suite for developing and monetizing apps, games and content; and Aura solution suite, which gives telecom operators new opportunities for relevant content to enhance device usage. The company is based in Tel Aviv-Yafo, Israel. IS went public through a reverse merger with blank check company Thoma Bravo Advantage on June 29, 2021.
On July 21, IS collaborated with Samsung India to integrate its Aura suite on Samsung devices sold in the country.
In its fiscal second quarter, ended June 30, IS’ revenue increased 82.6% year-over-year to $135.04 million. However, its total operating expenses increased 106.6% year-over-year from the same period last year to $96.03 million. Its net income decreased 56.9% year-over-year to $10 million, and its net income per ordinary share fell 50% in the same period to $0.01.
Analysts expect IS’ revenues to be $128.91 million in its fiscal third quarter, ending September, indicating a slight sequential decline.
The stock has slumped 9.6% in price since its stock market debut on June 29 to close yesterday’s trading session at $9.94.
IS is ranked #51 out of 146 stocks in the D-rated Software – Application industry in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
To see the additional POWR Rating for Growth, Value, Momentum, Stability, Quality, and Sentiment for IS, click here.
Support.com, Inc. (SPRT)
SPRT employs home-based experts to provide technological solutions to its customers across media, communication, healthcare, and retail. Its services include voice, chat, self-service, and technical support. The Sunnydale, Calif., company also provides users with SUPERAntiSpyware software, a malware protector, and guides for the use of its services.
On March 19, SPRT agreed to be acquired by cryptocurrency company Greenidge Generation Holdings Inc. The stockholders’ vote for the merger will be conducted on September 10. Six complaints have been filed against this acquisition, and two of them allege that the board has breached its fiduciary duties regarding the merger agreement.
SPRT’s total revenue decreased 22.9% year-over-year to $8.51 million in its fiscal second quarter, ended June 30. Its gross profit fell 21.8% from the same period last year to $3.02 million. Its net loss and net loss per share came in at $0.80 million and $0.03, respectively, indicating a substantial decline from positive year-ago values.
SPRT is gearing up for a short squeeze, as meme investors are investing in the heavily shorted company. Frequently mentioned in popular Reddit group r/wallstreetbets, the stock has gained 1500% in price over the past year and 1325.5% year-to-date. However, the stock has declined 12.8% intraday to close yesterday’s trading session at $31.36.
SPRT’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D grade, which equates to Sell in our POWR Ratings system.
SPRT has a Value grade of F, and a Growth, Stability, and Sentiment grade of D. It is ranked #123 of 146 stocks in the Software – Application industry.
Click here to see additional POWR Ratings for SPRT (Momentum and Quality).
Exela Technologies, Inc. (XELA)
Irving, Tex.-based XELA is a Business Process Automation (BPA) company that operates through three segments: Information & Transaction Processing Solutions (ITPS); Healthcare Solutions (HS); and Legal & Loss Prevention Services (LLPS), providing digital transformation solutions for its users.
XELA raised $150 million through an at-the-market equity offering that concluded yesterday. However, this dilution of share capital indicates lower EPS for existing shareholders.
In its fiscal second quarter, ended June 30, XELA’s revenue declined 4.8% year-over-year to $293.01 million. This can be attributed to a 10.6% decrease in revenue from information and transaction processing solutions. Its net loss and loss per share stood at $19.37 million and $0.33, respectively.
Analysts expect XELA’s EPS to remain negative in the current quarter (ending September 2021) and next quarter (ending December 2021). The stock has declined 1.5% in price over the past month to close yesterday’s trading session at $2.59.
XELA has a D Stability grade. In the D-rated, 106-stock Financial Services (Enterprise) industry, it is ranked #44.
In addition to the POWR Ratings we’ve just highlighted, one can see XELA’s ratings for Growth, Value, Momentum, Sentiment, and Quality here.
Marin Software Incorporated (MRIN)
MRIN is a technological advertisement management platform that offers services such as the e-commerce platform MarinOne, Marin Search for advertisers, and Marin Social for advertisers to manage social media. The company is in San Francisco.
On August 19, MRIN announced a partnership with advertising company Criteo S.A. (CRTO) to integrate its marketing and retail-media solutions with the MarinOne platform for better management. Chris Lien, CEO of Marin Software, said, “With this integration, we can tap into Criteo’s commerce data and intelligence to further our mission of providing advertisers with seamless access to customers across their customer journey, from the top of the funnel to the point of purchase.”
MRIN has attracted meme interest lately and is frequently mentioned in popular Reddit chatrooms. The increased retail investor attention drove the stock to 389.7% price gain over the past year and 229.7% year-to-date. However, it slumped 19.6% in the last month to close yesterday’s trading session at $6.66.
MRIN’s net revenue decreased 16.2% year-over-year to $6.09 million in its second fiscal quarter, ended June 30. Its non-GAAP gross profit fell 7% from the prior-year quarter to $3.38 million. And its non-GAAP net loss per common share decreased 41.7% year-over-year to $0.21.
It’s no surprise that MRIN has a Stability and Sentiment grade of D. In the 146 stock Software – Application industry, it is ranked #84.
To see additional POWR Ratings for Growth, Value, Momentum, and Quality for MRIN, click here.
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IS shares were trading at $9.81 per share on Wednesday afternoon, down $0.13 (-1.31%). Year-to-date, IS has declined -10.82%, versus a 21.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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