The stock market has remained under pressure lately on concerns surrounding the Fed’s hawkish stance and a possible recession. The tech-heavy NASDAQ composite has plunged 26.2% year-to-date and 8.7% over the past month.
While the continued digital transformation and migration to the cloud make the long-term prospects bright for the software-as-a-service industry, the recent tech sell-off has hammered shares of many SaaS companies. Since the Fed is slated to continue aggressive interest rate hikes this year, fundamentally weak SaaS stocks are expected to keep losing.
Against this backdrop, we think it could be wise to avoid fundamentally weak SaaS stocks Twilio Inc. (TWLO), UiPath Inc. (PATH), and C3.ai, Inc. (AI).
Twilio Inc. (TWLO)
TWLO offers a cloud communication platform that enables developers to build, scale and operate real-time communications within software applications. It also offers a customer engagement platform with software designed to address issues like account security, contact centers, and a set of APIs.
TWLO’s total operating expenses increased 41.9% year-over-year to $757.22 million for the second quarter ended June 30, 2022. The company’s non-GAAP operating loss came in at $7.30 million, compared to a non-GAAP operating income of $4.20 million in the year-ago period. Its non-GAAP net loss widened by 4.9% year-over-year to $19.25 million. Also, its non-GAAP net loss per share remained flat at $0.11.
Analysts expect TWLO’s EPS to remain negative for fiscal 2022. The stock has declined 82% over the past year and 75% year-to-date to close the last trading session at $65.94.
TWLO’s weak fundamentals are reflected in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a D grade for Momentum, Stability, and Quality. It is ranked #23 out of 25 stocks in the F-rated Software - SAAS industry. Click here to see the other ratings of TWLO for Growth, Value, and Sentiment.
UiPath Inc. (PATH)
Enterprise automation software company PATH offers an end-to-end automation platform that provides a range of robotic process automation (RPA) solutions. It provides a robust set of capabilities to discover automation opportunities and build, manage, run, engage, measure, and govern automation across departments within an organization.
For the fiscal second quarter ended July 31, 2022, PATH’s total operating expenses increased 23.3% year-over-year to $317.84 million. The company’s non-GAAP operating loss came in at $11.22 million, compared to an operating income of $6.73 million in the year-ago period.
Also, its non-GAAP net loss came in at $11.41 million, compared to a net income of $4.19 million in the year-ago period. In addition, its non-GAAP loss per share came in at $0.02, compared to a non-GAAP EPS of $0.01 in the prior-year period.
Analysts expect PATH’s EPS to be negative for fiscal 2022. Over the past year, the stock declined 75.4% to close the last trading session at $15.59.
PATH’s POWR Ratings are consistent with this bleak outlook. It has an overall rating of D, equating to a Sell in our proprietary rating system.
It has a D grade for Value, Momentum, Stability, and Quality. Within the same industry, it is ranked #24. To see the other ratings of PATH for Growth and Sentiment, click here.
C3.ai, Inc. (AI)
AI is an enterprise artificial intelligence (AI) software company. The company provides a C3 AI application platform to design, develop, and deploy enterprise AI applications, C3 AI Ex Machina for analysis-ready data, and C3 AI Data Vision which visualizes and leverages the relationships between data entities.
AI’s total operating expenses increased 58.2% year-over-year to $120.11 million for the first quarter ended July 31, 2022. The company’s loss from operations and net loss widened 100.5% and 91.9% year-over-year to $73.21 million and $71.87 million, respectively. Also, its loss per share came in at $0.67, 81.1% higher than the prior-year quarter.
Street expects AI’s EPS to remain negative for fiscal 2023. Its revenue for the quarter ending January 31, 2023, is expected to decrease 5% year-over-year to $66.27 million. The stock has lost 71.8% over the past year and 54.3% year-to-date to close the last trading session at $14.29.
AI’s POWR Ratings reflect this bleak outlook. It has an overall D rating, which translates to a Sell in our proprietary rating system.
It has a D grade for Momentum, Stability, Sentiment, and Quality. In the Software - SAAS industry, it is ranked last. Click here to see AI’s ratings for Growth and Value.
TWLO shares were trading at $65.67 per share on Wednesday morning, down $0.27 (-0.41%). Year-to-date, TWLO has declined -75.06%, versus a -16.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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