The United States job market has exhibited resilience, adding more jobs than expected in April. Lower, layoffs and hiring freezes have been sweeping across businesses this year. Amid this, we think companies that have been struggling with their growth trajectories and have implemented employee layoffs recently, such as Netflix (NFLX), Robinhood Markets (HOOD), and Carvana (CVNA), could be best avoided. Let’s discuss.
Despite surging inflation and of a slowdown in growth, the US added economy than expected last month amid an fears tight labor market. But in contrast to this, the tech sector, which thrives during the pandemic, is showing signs of contraction. Several tech companies have recently announced hiring freezes and layoffs as a part of cost-cutting measures due to factors analysts believe are unique to the sector.
Although the overall job market remains resilient and seems to be on track for a return to pre-pandemic levels, it”is showing some signs of cooling as it turns the corner and the recovery enters a new phase,” said Daniel Zhao, senior economist at jobs review site Glassdoor.
Netflix, Inc. (NFLX)
Popular entertainment services provider NFLX in Los Gatos, Calif., operates in more than 190 countries with 222 million paid memberships. The company offers TV series, documentaries, feature films, and mobile games across various genres and languages.
The company is laying off approximately 150 employees, with eliminated positions representing less than 2% of its 11,000 staffers. Most of the reduction is happening in the US The decision came less than a month after NFLX reported a loss of 200,000 subscribers in the first quarter, a stark turnaround from expectations of adding 2.70 million subscribers, while also forecasting future losses this quarter. “As we explained on earnings, our slowing revenue growth means we are also having to slow our cost growth as a company,” a representative from the company said.
For its fiscal first quarter ended March 31, 2022, its revenues increased 9.8% year-over-year to $7.87 billion. However, its net income declined 6.4% from its year-over-year value to $1.60 billion, while its EPS decreased 5.9% year-over-year to $3.53. Also, NFLX’s cash, cash equivalents, and restricted cash balance stood at $6.03 billion, reflecting a 28.5% decline from the prior-year quarter.
Analysts expect NFLX’s revenues for its fiscal year ending Dec. 31, 2022, to be $32.42 billion, indicating a 9.2% increase year-over-year. However, its EPS is expected to decline 2.4% from the last year to $10.97.
The stock has slumped 61% in price over the past year and 68.4% year-to-date to close yesterday’s trading session at $190.56.
NFLX’s POWR Ratings reflect its poor prospects. The POWR ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. NFLX has a D grade for Momentum. It is ranked #14 of 70 stocks in the F-rated Internet industry.
In addition to the grades highlighted, one can see the NFLX’s Growth, Quality, Sentiment, Stability, and Value ratings here.
Robinhood Markets, Inc. (HOOD)
HOOD in Menlo Park, Calif., is known for pioneering commission-free trades of stocks, exchange-traded funds, and cryptocurrencies via a mobile app.
The retail brokerage firm announced plans to cut its staffing levels, citing “duplicate roles and job functions.” This will affect about 9% of its full-time employees. The company is struggling with shrinking revenue and active users, compelling HOOD to address its costs.
HOOD’s total net revenues decreased 42.7% year-over-year to $299 million in its fiscal first quarter, ended March 31, 2022. Its net loss and net loss per share came in at $392 million and $0.45, respectively, compared with $1.45 billion and $6.26in the first quarter of 2021. The company’s Monthly Active Users (MAU) declined 10% year-over-year to 15.90 million, while its Average Revenues Per User (ARPU) decreased 62% year-over-year to $53.
The $342.36 million consensus revenue estimate for the current quarter indicates a 39.4% decline from the prior-year quarter. And its EPS is expected to remain negative at least until this year.
HOOD shares have plummeted 43.4% in price year-to-date. The stock has declined 69.4% over the past six months to close yesterday’s trading session at $10.06.
HOOD’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our proprietary rating system.
HOOD has an F grade for Stability and Sentiment and a D grade for Value and Quality. It is ranked #140 among the 157 stocks in the F-rated Software – Application industry. Click here to view additional HOOD ratings for Growth and Momentum.
Carvana Co. (CVNA)
CVNA operates an e-commerce platform for buying and selling used cars in the United States. CVNA is headquartered in Phoenix, Ariz.
The company recently announced that it’s laying off approximately 2,500 workers, roughly 12% of its workforce, to bring its staffing and expenses in line with sales. This move came after CVNA posted a six times larger loss in the first quarter than for the same period a year ago. It expects the reduction to “facilitate Carvana returning to efficient growth on its mission to change the way people buy and sell cars.”
CVNA’s net sales and operating revenues increased 55.8% year-over-year to $3.50 billion in its first fiscal quarter, ended March 31, 2022. However, its gross profit stood at $298 million, down 11.8% from its year-ago value. Its net loss rose 517.1% from the prior-year quarter to $506 million, while its net loss per share grew 528.3% year-over-year to $2.89.
The Street expects the company’s revenues to increase 26.5% year-over-year to $16.21 billion in its fiscal year ending Dec. 31, 2022. However, the company’s EPS is expected to decrease 315.9% year-over-year to negative $6.78.
The stock has slumped 82.1% in price year-to-date and 59% over the past month to close yesterday’s trading session at $41.60.
CVNA’s weak prospects are reflected in the POWR Ratings. It has an overall F rating, which translates to Strong Sell in our proprietary rating system. It also has an F grade for Growth, Stability, Sentiment, and Quality. It is ranked #67 in the Internet industry. To get additional CVNA ratings for Value and Momentum, click here.
NFLX shares fell $2.76 (-1.45%) in premarket trading Wednesday. Year-to-date, NFLX has declined -68.79%, versus a -14.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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