The prices of tech stocks have been correcting since the start of this year due to fears surrounding the Federal Reserve's hawkish tilt. The Fed is poised to raise rates three times or more this year to combat 40-year high domestic inflation. The tech-heavy Nasdaq Composite has plunged 13.9% year-to-date and 15% over the past three months.
A spike in bond yields is expected to reduce the future earnings of many technology companies. As a result, overvalued tech stocks that gained momentum last year have begun to underperform relative to the broader market so far this year.
Given these factors, we think it advisable to avoid unprofitable tech companies Roblox Corporation (RBLX), Affirm Holdings, Inc. (AFRM), and Aurora Innovation, Inc. (AUR), which are expected to underperform.
Roblox Corporation (RBLX)
RBLX is a technology company that operates as an online entertainment platform. The San Mateo, Calif.-based company offers Roblox Studio, a tool that allows users to learn coding, animation, 3D design, and development, and Roblox Education, a tool for learning. RBLX serves customers in the U.S., Canada, Europe, the Asia-Pacific, and internationally.
On Oct. 27, 2021, RBLX priced a $1 billion offering of 3.9% senior notes due 2030. The interest on these notes will be payable in cash semi-annually and will mature on May 1, 2030, unless earlier repurchased or redeemed. This note offering is expected to increase RBLX’s debt interest burden and reduce the company’s cash balance.
In its fiscal year 2021 fourth quarter, ended Dec. 31, 2021, RBLX’s total cost and expenses increased 87.1% year-over-year to $708.42 million. The company’s loss from operations increased 103.7% year-over-year to $139.65 million. Its loss before income taxes increased 118.1% year-over-year to $146.60 million. RBLX’s adjusted EBITDA declined 25.6% year-over-year to $168.01 million. In addition, its net loss attributable to common stockholders increased 143.9% from its year-ago value to $143.30 million.
RBLX is relatively overvalued versus its peers. In terms of forward EV/Sales, RBLX is currently trading at 7.99x, which is 249.7% higher than the 2.29x industry average. Its 9.40 forward Price/Sales multiple is 478.5% higher than the 1.63x industry average. And its 43.47 forward Price/ Cash Flow multiple is 371.5% higher than the 9.22x industry average.
The negative $0.98 consensus EPS estimate for its fiscal year 2022 ending December 2022 represents a 1.3% year-over-year decline from the same period in 2021.
The stock has declined 51.4% in price year-to-date and 59.2% over the past three months. RBLX closed yesterday’s trading session at $50.10.
RBLX’s POWR Ratings reflect this bleak outlook. The company has an overall D rating, which translates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
RBLX has an F grade for Stability and a D grade for Value and Sentiment. Within the Entertainment - Toys & Video Games industry, it is ranked #19 of 22 stocks.
To see additional POWR Ratings (Momentum, Growth, and Quality) for RBLX, click here.
Affirm Holdings, Inc. (AFRM)
San Francisco-based AFRM operates as a digital and mobile commerce platform in the U.S. and Canada. The company’s platform comprises elements that include point-of-sale payment solutions for consumers, merchant commerce solutions, and user-focused apps. AFRM allows consumers to pay for a purchase over time and allows them to select their repayment options, loans funded and issued by its originating bank partner.
Last December, AFRM was investigated by Block & Leviton for potential securities law violations or engagement in unlawful business practices. Investors who lost money in AFRM were asked to contact the law firm to recover their losses.
AFRM’s total operating expenses increased 141.4% year-over-year to $557.21 million in its fiscal 2022 second quarter, ended Dec. 31, 2021. AFRM’s operating loss grew 632.9% year-over-year to $196.20 million. Its loss before income taxes increased 501% year-over-year to $159.46 million. Its net loss and net loss per share attributable to common stockholders came in at $159.74 million and $0.57, respectively, registering a 500.3% and 50% increase from the same period last year.
AFRM is trading at a premium to its peers. In terms of forward EV/Sales, AFRM is currently trading at 8.70x, which is 155.4% higher than the 3.41x industry average. Its 8.36 forward Price/Sales multiple is 138.9% higher than the 3.50x industry average.
The Street expects AFRM’s EPS to come at a negative $0.44 in the current quarter, ending March 2022.
Shares of AFRM have declined 61.5% in price year-to-date and 58.4% over the past year. It closed yesterday’s trading session at $38.71.
AFRM’s POWR Ratings reflect its poor prospects. AFRM has an overall rating of F, which translates to Strong Sell in our POWR Ratings system.
It has a grade of F for Stability and Sentiment and a D grade for Value and Quality. It is ranked #79 of 81 stocks in the D-rated Technology - Services industry.
Click here to see AFRM Ratings for Momentum and Growth.
Aurora Innovation, Inc. (AUR)
AUR is an American self-driving technology company. The Pittsburgh, Pa.-based company’s flagship product is the Aurora Driver, which offers a platform to bring software, hardware, and data services together to autonomously operate vehicles, including passenger vehicles, commercial vehicles, and heavy-duty trucks.
On Feb. 14, 2022, AUR collaborated with U.S. Xpress to deploy autonomous trucks and deliver premium service for the carriers. The move should deliver the benefits of transformative technology to the business and consumers. However, this collaboration is expected to take a while to realize profits.
In its fiscal 2021 fourth quarter, ended Dec.31, 2021, AUR’s total operating expenses increased 284.3% year-over-year to $255.92 million. Its loss from operations increased 243.8% year-over-year to $228.98 million. AUR’s loss before income taxes increased 281.1% year-over-year to $253.54 million. And the company’s adjusted EBITDA declined 98.3% year-over-year to negative $122.58 million. Its net loss increased 278.3% from its year-ago value to $251.68 million, and net loss per share grew 16.7% year-over-year to $0.28.
AUR is relatively overvalued compared to its peers. Its 9.40 forward Price/Sales multiple is 478.5% higher than the 1.63x industry average. Its 43.47 forward Price/Cash Flow multiple is 371.5% higher than the 9.22x industry average. PLAB’s 43.33 forward EV/EBITDA ratio compares with an 8.86 industry average.
The $47.83 million consensus revenue estimate for its fiscal year 2022 ending Dec. 31, 2022, represents a 42.1% year-over-year decline.
AUR shares have declined 53.8% in price year-to-date and 55.9% over the past three months to close yesterday’s trading session at $5.20.
AUR’s POWR Ratings are consistent with this bleak outlook. AUR has an overall rating of D, which translates to Sell in our POWR Ratings system.
It’s no surprise that it has a D grade for Growth, Value, and Quality. Within the D-rated Technology - Services industry, it is ranked #76 of 81 stocks.
To see additional POWR Ratings (Momentum, Stability, and Sentiment) for AUR, click here.
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RBLX shares were trading at $49.32 per share on Friday morning, down $0.78 (-1.56%). Year-to-date, RBLX has declined -52.19%, versus a -8.77% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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