Smart money is looking for the exit as market conditions become increasingly shaky and, more often than not, they’re looking at tech stocks to sell more than any other segment or sector. June’s net tech stock sales are about to hit their highest monthly level since 2017 as hedge funds and institutional investors begin looking for an off-ramp from increasingly concentrated tech portfolios and indices.
But, while trimming a massive Nvidia (NASDAQ:NVDA) position with a low cost basis is a no-brainer for a massive active fund, finding tech stocks to sell — or short — as a retail investor isn’t quite as simple. Most of the obvious shorts have already been shaken from the market or hit their terminal downside, while shorting bigger names is too risky to time (and could incur a hefty tax bill if you’ve been holding for more than a year or so).
That isn’t to say there’s no finding tech stocks to sell in this environment, though. These three tech stocks to sell combine limited operational upside remaining with, in most cases, shaky financials that may not survive even a modest market downturn moving forward.
GoodRx (GDRX)
GoodRx (NASDAQ:GDRX) may be riding high on a recent revenue beat and expectation-busting earnings, but that doesn’t detract from its status among tech stocks to sell.
For tech stocks like GoodRx, one of the top cash cow strategies is subscription-based, recurring revenue. Interim CEO Scott Wagner even reinforced this point in a recent press release, saying that GoodRx is on a “great trajectory to return to being a ‘Rule of 40’ company.”
For the company’s first-quarter report, total revenue climbed 7.55% year-over-year (YOY), while the EBITDA margin marked a respectable 31.7% — putting GoodRx on track, seemingly, to hit its ‘Rule of 40’ goals.
But the top-line numbers alone don’t tell the whole story and actually hide the sticky spot that GoodRx finds itself in. As I said before, recurring subscription-based revenue is the ultimate goal GoodRx is angling for, and it missed the mark in that department. Net subscriptions fell quarter-over-quarter from 884,000 to 778,000, while YOY subscription revenue dropped by more than $1.5 million, or 6.3%.
At the same time, SG&A expenses surged nearly 40% YOY, largely due to expected litigation costs as the company faces multiple simultaneous lawsuits, including allegations that GoodRx failed to “adequately [protect] consumer privacy and that [GoodRx] communicated consumer information to third parties.” As you can imagine, privacy concerns surrounding a company safeguarding intimate medical information aren’t ideal, particularly amid key financial figures slipping.
Affirm (AFRM)
Affirm (NASDAQ:AFRM) might seem like an unexpected addition to a list of tech stocks to sell, especially considering its impressive 106% gain since June 2023 and a market cap of nearly $10 billion. However, multiple converging factors make this one of today’s top tech stocks to sell.
Affirm’s core service of “buy now, pay later” (BNPL) lending, allows consumers to take out instant micro-loans at purchase. This service particularly appeals to consumers with lower creditworthiness, the cornerstone of Affirm’s current risk. As credit card delinquencies rise, Affirm will likely see a follow-on effect of increased BNPL defaults as the commercial credit card loans act as a leading indicator in this case.
A detailed look at Affirm’s recent financial reports reveals a troubling $84 million rise in its provision for credit losses (reserves for anticipated loan defaults) from 2023 to today. This increase came just before the summer spending season, which likely saw consumers heavily relying on Affirm’s BNPL services, further straining their financial obligations. Considering current consumer financial trends and broader economic indicators, Affirm’s future looks uncertain, making it an easy call among tech stocks to sell.
Udemy (UDMY)
Udemy (NASDAQ:UDMY) may seem a solid stock considering the increased emphasis on remote learning platforms, but, in an age where free educational resources abound, convincing customers to pay for courses they can easily find on platforms like Google’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube or in books is a tough sell. Despite boasting some high-profile corporate clients such as AT&T (NYSE:T), larger companies are likely to develop more of their own internal training programs, reducing reliance on services Udemy offers.
This misalignment is clear in Udemy’s customer retention. While the company reported a 12% increase in total customers and a 21% rise in recurring revenue last quarter, the underlying numbers tell a different story.
Specifically, Udemy experienced an 8% decline in net dollar retention, which measures how long customers stay with the service. More concerning is the 9% drop in large customer net dollar retention, which includes companies with over 1,000 employees. These figures suggest that once companies have used Udemy for their immediate needs, they aren’t staying on for long-term engagements.
In a highly competitive EdTech market, Udemy’s struggle to retain customers and differentiate itself is a red flag and makes it one of the top tech stocks to sell within its specific operational segment.
On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.