While multiple fiscal stimulus packages and the Fed’s dovish monetary policy stance are driving the economic recovery, concerns over rising inflation and Treasury yields are driving investors to drop overvalued tech stocks. The 13-year high inflation rate and rising Treasury yields have caused a 5.6% decline in the tech-heavy Nasdaq Composite over the past five days.
As investors rotate to cyclical stocks to capitalize on the economic recovery, the tech sell-off might continue for some time. The relatively low investor interest in the tech industry amid the fast-paced economic recovery is evident in Technology Select Sector SPDR ETF’s (XLK) 2.5% decline over the past three months. Also, the benchmark Nasdaq Composite declined by 5% over this period.
In light of these developments, we believe investors should steer clear of Reddit forum wallstreetbets (WSB) favorite software companies Fastly, Inc. (FSLY) and Sphere 3D Corp. (ANY) until the broader tech industry stabilizes.
Click here to check out our Software Industry Report for 2021
Fastly, Inc. (FSLY)
FSLY is a cloud computing and real-time content delivery network operator with an international market presence. Its edge cloud platform is designed as Infrastructure-as-a-Service for personalized digital experiences. It also provides cybersecurity services and developer hub services. The Reddit community believes this stock has significant potential.
FSLY is currently being investigated by law firm Kahn Swick & Foti, LLC for alleged violations of fiduciary duties by the company’s top management and/or violations of federal laws. The investigation was initiated in March and is ongoing. The implications of the prolonged investigation are casting a negative light on the company, as reflected in its share price performance. The stock has declined 52.6% year-to-date, and 39.9% over the past month.
FSLY’s revenues increased 35% year-over-year to $84.85 million in its fiscal first quarter, ended March 31. However, its dollar-based net expansion rate (excluding Signal Sciences) declined by 400 basis points sequentially, while its net retention rate (excluding Signal Sciences) slumped 800 basis points from the prior quarter. Its operating loss came in at $50 million, up 316.7% from the same period last year. Its non-GAAP loss per share doubled from the year-ago value to $0.12. FSLY missed the Street’s EPS estimate by 9.1%.
Analysts expect FSLY’s EPS to remain negative until at least 2022. Furthermore, consensus EPS estimates indicate a 900% year-over-year decline in the current quarter (ending June 2021) and a 138.9% decline in its fiscal year 2021.
It’s no surprise that FSLY has an overall F rating, which equates to Strong Sell in our proprietary POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting. The stock has a grade of F for Growth and Sentiment, and D for Value, Stability and Quality.
In addition to the grades we’ve highlighted, one can check out FSLY Ratings for Momentum here.
Sphere 3D, Corp. (ANY)
Based in Canada, ANY operates as a data management and desktop and application virtualization software development solutions company internationally. The company sells its products and software services through its designated distributor and reseller network. Its target customer base includes small- and medium-sized businesses, and distributed enterprises. ANY is discussed frequently on the WSB forum.
In February, ANY terminated its acquisition of Rainmaker Holland, citing regulatory conflicts. In the same month, the company received a public letter of reprimand from Nasdaq, due to its failure to comply with the exchange’s listing rules. Together, these developments make ANY a risky investment bet currently.
For its fiscal year ended December 31, ANY’s revenues stood at $4.80 million, representing a 16.7% decline year-over-year. Its net loss from operations slumped 34.9% from the year-ago value to $5.80 million. This can be attributed to a slight increase in operating expenses to $8.20 million. The loss came in at 98 cents per share over this period. Shares of ANY have declined 31.6% over the past month, and 9.8% over the past five days.
ANY’s POWR Ratings reflect this bleak outlook. The company has an F grade for Quality and Stability, and D for Momentum. Of the 125 stocks in the D-rated Software – Application industry, ANY is ranked #100.
We have also graded ANY for Sentiment, Growth and Value. Get all ANY’s Ratings here.
Click here to check out our Software Industry Report for 2021
FSLY shares were trading at $40.31 per share on Thursday afternoon, down $1.14 (-2.75%). Year-to-date, FSLY has declined -53.86%, versus a 9.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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