As we work through the final peak week for fourth-quarter earnings, it's hard to describe the season as anything other than underwhelming, with many companies missing estimates on the top and bottom line as a number of macroeconomic concerns run rampant.
Unfortunately, some highly anticipated tech companies reporting this week will not be the ones to turn this season around. The Estimize community has grown increasingly bearish on Tesla, Zynga, TripAdvisor, Pandora and Groupon, ratcheting down earnings per share estimates by at least 15 percent for each since the third-quarter season. The Internet names on this list in particular, once touted for their tremendous growth potential, are now struggling due to stiff competition.
If one of these companies seems out of place on this list, it's Tesla. A decrease in expectations for the fourth quarter has more to do with heavy investments during the last part of 2015 and the possibility that vehicle sales guidance will not be met, and less to do with a lack of long-term prospects for the company.
Tesla is without a doubt a cult favorite come earnings season, with fans unwilling to bet against CEO Elon Musk. Currently the Estimize community is calling for EPS of 5 cents when Tesla reports after tomorrow's closing bell.
This is bearish for two reasons.
- This number has fallen 64 percent since the last quarterly report.
- The Estimize consensus is rarely below Wall Street, but when it is, it tends to be an even stronger signal.
On average Tesla has only beaten the Estimize EPS consensus 33 percent of the time.
This year Tesla delivered a record 50,000 vehicles but failed to meet volume expectations the company set earlier in the year. Consequently, shares of Tesla have plunged over concerns that the company won't be able to execute on its ambitious growth plans.
One of the main reasons Tesla hasn't been able to deliver profit growth is because the company has been heavily spending. Given operating expenses account for almost 50 percent of the company's revenue, missing volume forecasts puts a severe damper on margins.
Tesla has made large investments in launching its first SUV and building out a sustainable battery. After several delays, the SUV is not expected to be available until the second half of the year, and if it misses sales forecasts like the Model S sedan, it could have a crippling effect on the stock in 2016
While the markets will likely be distracted by Tesla's report Wednesday, mobile game developer Zynga will also be releasing results. The Estimize EPS consensus of $0.00 is in-line with the Street, but that number has fallen 16 percent in the last three months.
Revenues too have been slashed by 8 percent in that time. The downgrade comes as Zynga has struggled to release a hit game since "FarmVille" and "Texas HoldEm Poker." Since its partnership with Facebook ended, even its flagship game, "Farmville," has decreased in popularity, after hitting a peak of 80 million players in 2010.
Two of the company's most important metrics, daily active user (DAUs) and monthly active users (MAUs) have plunged as the company searches for a new growth catalyst. Making matters worse, Zynga delayed the launch of two new anticipated games, "CSR2" and "Dawn of TItans," from Q4 2015 to Q1 2016. Zynga appears to be in trouble if it doesn't deliver another hit game soon, and salvage what's left of it's user base.
Next up is TripAdvisor, set to release results before the open Thursday. For years, online travel has been a high growth industry, but recent headwinds have come at the expense of profit growth for TripAdvisor and its peers. The Estimize EPS consensus of 34 cents is still 2 cents ahead of Wall Street, but that figure has dropped 24 percent since the last quarterly report.
This is another name that doesn't beat very often either, only surpassing the Estimize consensus 33 percent of the time. Terror threats have led to a decline in European travel, and a stronger U.S. dollar has sufficiently deflated international revenues.
Moreover, TripAdvisor users have failed to transition to its newest platform, Instant Booking, as fast as the company had expected. Instant Booking is anticipated to be TripAdvisor's biggest driver of long-term success and has the potential to disrupt the industry, yet the company has had a difficult time monetizing in the short-term due to the current weakness in international travel.
Out after the bell on Thursday are Pandora and Groupon, two names struggling from stiff competition in their respective spaces. The emergence and growth of Apple Music and Spotify have taken the industry by storm, leaving Pandora on the sidelines.
The Estimize EPS consensus for Thursday's report stands at 9 cents, in line with Wall Street, and down 35 percent in the last three months. With active users growing at a slower pace than the aforementioned platforms, Pandora has made heavy investments in international expansion, new acquisitions, and improved marketing initiatives to revitalize growth.
So far, Pandora has failed to expand outside of the United States, while both Apple and Spotify have a strong presence in almost 100 countries. For 2016 the company will focus on signing direct licensing deals with record labels in its global growth. On top of costly label deals, currency headwinds and higher royalty fees will put downward pressure on Pandora's margins.
Groupon is currently undergoing a restructuring initiative, shifting its strategy from a deal business to a local marketplace focusing on marketing, international expansion and shopping. This reorganization will weigh heavily on financials in the near term as stock prices continue to plunge.
As such, EPS estimates have fallen to 1 cent from 6 cents after last quarter's report. Marketing initiatives, which had been neglected in the past, are now a strategic focus as Groupon attempts to stimulate brand awareness. Moreover, stiffer competition and waning macroeconomic conditions pose a serious threat to Groupon's profitability.
Recently, Groupon issued weak Q4 guidance pointing to declining gross billings and increasing costs of restructuring activities. With shares trading at less than $3 a share, Groupon has no wiggle room to miss its numbers this Thursday. Any positive surprise could give the stock a much needed boost.