The stock market has enjoyed a nice rally for most of 2024 after a strong recovery in 2023. However, equities are showing some weakness, with many tech companies in the middle of corrections. Discouraging jobs data and the upcoming U.S. election are two catalysts for recent declines.
It’s times like these when investors shouldn’t panic sell. The S&P 500 has maintained an annualized return of 10.16% over the past 20 years, and there have been many corrections and a few crashes during that stretch. The stock market still remains one of the best opportunities to generate long-term wealth.
However, it’s worth reviewing your holdings to determine if long-term growth prospects are intact. Some companies have declining revenue and earnings growth that suggest weaknesses are emerging. Furthermore, other companies have overextended themselves and remain vulnerable to pullbacks. These are three of the Nasdaq stocks to sell and ones you should consider avoiding.
Etsy (ETSY)
While all companies are vulnerable to a decline in consumer spending, Etsy (NASDAQ:ETSY) finds itself in a particularly challenging situation. Shares are down by more than 30% year-to-date and look like they can extend their losses.
The online marketplace reported a 2.1% year-over-year (YOY) decline in gross merchandise sales in the second quarter. Declining gross merchandise sales puts a firm ceiling on how much revenue can grow. While revenue increased by 3.0% YOY, that was largely due to higher fees and advertising.
Consumers are running out of patience for the rising cost of goods and services. Even mega-cap companies have faced the brunt of these concerns in recent earnings reports. It’s important to remember that Etsy has been reporting declining GMS during relatively good times. Other e-commerce companies reported double-digit revenue growth at a time when Etsy had slight declines in GMS. What happens to Etsy when the economy slows down? Only time will tell, but it probably won’t be pretty for investors.
Airbnb (ABNB)
The jobs data suggests that more people are losing their jobs and fewer people are getting new ones. In this environment, people will be more protective of their money. Companies that offer expensive services are likely to face the consequences. Airbnb (NASDAQ:ABNB) fits into this category as its marketplace has been getting more expensive in recent years.
The company originally gained market share as a more affordable alternative to hotels. However, that narrative has increasingly faded into a bygone era. More consumers are seeking hotel deals thanks to the rising costs of Airbnb. Rideshare apps struggle with the same problem.
First-quarter financials don’t suggest much of a problem, but they are the calm before the storm. Revenue increased by 18% YOY while net income more than doubled. It’s no secret that people are having a more difficult time covering the essentials, even though the stock market continued to roar higher until last month. Airbnb looks vulnerable in that type of market.
Dropbox (DBX)
During an economic slowdown, people may look for subscriptions to trim and services to consolidate. DropBox (NASDAQ:DBX) may become a primary candidate for those scenarios since big tech companies offer similar file storage solutions. DropBox doesn’t have any competitive moat, which doesn’t give it much room to raise prices. First-quarter earnings results weren’t promising, as revenue only increased by 3.3% YOY. Many tech giants have seen their revenue decelerate in recent quarters, so it wouldn’t be shocking to see DropBox’s revenue growth rate decrease by the end of the year. Dropbox is set to report Q2 earnings on August 8.
Paying users is only up by 1.5% YOY after reaching 18.16 million individuals and businesses. Furthermore, the average revenue per paying user only jumped from $138.97 to $139.59. That’s a 0.4% YOY increase. The results are likely to look worse in subsequent quarters as economic challenges become more apparent leading up to the election.
On the date of publication, Marc Guberti did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.