The U.S. economy added more jobs than anticipated last month despite rising inflation and concerns about an economic slowdown. But in contrast to this, due to factors analysts believe are specific to industries, several companies recently announced hiring freezes and layoffs as part of cost-cutting measures.
According to a recent survey, more than half of all U.S. businesses intend to lay off workers as they prepare for a downturn in the economy. Companies are concerned for various reasons, including economic uncertainty, elevated inflation, supply chain disruptions, higher interest rates, and slower growth.
Given their weak financials, history of massive losses, and bleak growth prospects, we think shares of hard-hit companies that have recently taken layoff measures, such as Shopify Inc. (SHOP), DoorDash Inc. (DASH), and Peloton Interactive Inc. (PTON), are the best avoided now.
Shopify Inc. (SHOP)
SHOP offers a cloud-based, multi-channel commerce platform for small and medium-sized businesses. Merchants use the company’s software to run their businesses across their sales channels, including Web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.
In July, SHOP announced that it would be laying off 10% of its workforce. In a memo to employees, CEO Tobi Lutke admitted that he had underestimated the length of the pandemic-driven e-commerce boom and that, amid a broader pullback in online spending, Shopify would cut several roles.
During the second quarter ended June 30, 2022, SHOP’s revenue increased 15.7% year-over-year to $15.7 billion. However, its operating loss came in at $190.21 million, compared to an operating income of $139.44 million. The company reported a net loss of $1.20 billion, compared to a net income of $879.09 million in the prior-year quarter. Its loss per share amounted to $0.95.
Analysts expect SHOP’s EPS to decline 116.7% in fiscal 2022 and 181.8% in the current quarter ending September 2022. The stock has declined 80.8% over the past year and 26.9% over the past month.
SHOP’s POWR Ratings are consistent with this bleak outlook. The stock has an overall rating of F, which translates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SHOP has been graded a D for Growth, Value, and Sentiment. Within the F-rated Internet – Services industry, it is ranked #29 of 30 stocks.
To see additional POWR Ratings for Quality, Stability, and Momentum for SHOP, click here.
DoorDash Inc. (DASH)
DASH runs a logistics platform that connects merchants, customers, and dashers in the United States and worldwide. It runs the DoorDash marketplace, which offers various services that help merchants solve mission-critical problems like customer acquisition, delivery, insights, analytics, merchandising, payment processing, and customer support.
In July, DASH shut down Chowbotics (its robotics division) and laid off 35 workers. The idea is based on the company’s inability to turn a profit during the pandemic when revenues skyrocketed to new heights.
DASH’s revenue increased 30.1% year-over-year to $1.61 billion for the second quarter ended June 30, 2022. However, its operating loss increased 175.8% from the year-ago value to $273 million. Its net loss surged 157.8% from the prior-year quarter to $263 million. Its loss per share amounted to $0.72.
Its EPS is expected to decline 100% in the current quarter ending September 2022 and 60.4% in fiscal 2022. The stock has declined 69.9% over the past year and 60.9% year-to-date.
DASH’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The stock has a D grade for Growth, Value, and Sentiment. In the F-rated Internet – Services industry, it is ranked #24.
In addition to the POWR Ratings grades I have just highlighted, you can see the DASH rating for Momentum, Stability, and Quality here.
Peloton Interactive Inc. (PTON)
PTON sells interactive fitness products in North America and internationally. It sells connected fitness products with touchscreens that stream live and on-demand classes under the brand names Peloton Bike, Peloton Bike+, Peloton Tread, and Peloton Tread+.
Last month, PTON announced plans to cut approximately 800 jobs to reduce its operating footprint and cut costs. In addition to job cuts, the company announced that it would raise prices on certain products and outsource functions such as equipment deliveries and customer service to third-party vendors. Beginning next year, the company will also gradually close many of its retail showrooms.
It also intends to lay off roughly half of its customer support staff, primarily based in Plano and Tempe, Arizona. As needed, third-party firms will be used to handle support requests.
PTON’s total revenue decreased 27.6% year-over-year to $678.7 million for the fourth quarter ended June 30, 2022. Its operating loss grew 298.6% from the prior-year quarter to $1.20 billion. The company’s net loss surged 297.3% from the year-ago value to $1.24 billion. Its loss per share grew 250.5% year-over-year to $3.68.
Street expects PTON’s revenues to decline 14.4% year-over-year to $3.07 billion in fiscal 2022. In addition, its EPS is expected to decline by 76.5% per annum over the next five years and remain negative in the current and next years. The stock has declined 91.2% over the past year and 26.3% over the past month.
PTON’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system.
It also has an F grade for Quality and Sentiment and a D for Value. PTON is ranked #57 of 59 stocks in the C-rated Consumer Goods industry.
Click here to see the additional POWR Ratings for PTON (Momentum, Stability, and Growth).
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SHOP shares were trading at $30.17 per share on Wednesday afternoon, up $0.33 (+1.11%). Year-to-date, SHOP has declined -78.10%, versus a -16.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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