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5 Tech Stocks to Avoid; Hint - 2 are Run by the Same CEO - Wedbush

June 6, 2016 8:47 AM EDT
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Price: $53.70 --0%

Rating Summary:
    10 Buy, 47 Hold, 5 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 13 | Down: 11 | New: 11
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The Wedbush tech team collectively put together a list of companies that have deteriorating fundamentals. SQ and TWTR should be avoided due to weak business models. WDAY is seeing the impact from increasingly aggressive Oracle sales practices. GRPN may have a few more tough quarters before the turnaround strategy produces results. GOOGL may see be at the point of search monetization peaking.

Twitter (NYSE: TWTR) - The team expects Twitter to struggle with growth in advertising revenue as long as its service remains difficult to use. Twitter has made glacial progress in making its service easy for the uninitiated to use, and has yet to convince advertisers of the value of the platform, in our view.

Square (NYSE: SQ) - is rapidly growing a business that may never reach peer profitability - Square is selling at Wal-Mart prices with Neiman Marcus’ cost structure. The SMB loan broker business is a risky growth engine and while a 35% interest rate on Square’s loans may still be legal, we expect further scrutiny based on recent US Department of Treasury comments.

Workday (NASDAQ: WDAY) - Concern comes from real research rather than speculation about failing business models. Partner checks indicated weakening integration pipelines, due to deal slippage in WDAY’s core HCM business. The analyst believes this could be the cumulative impact of Oracle’s aggressive sales tactics aimed at keeping its large PeopleSoft customers from defecting to another vendor.

Groupon (NASDAQ: GRPN) - remains a key customer acquisition channel for local brick and mortar establishments however, current restructuring efforts are likely to act as headwind to growth for at least a few more quarters. Management’s growth strategy has the potential to bear fruit, but this will likely be a FY17 event at the earliest and shares are likely to be range-bound in the interim.

Google (NASDAQ: GOOGL) - has the possibility of 2H risk as some of mobile changes from last year are cycled, and search monetization may be peaking. Longer-term the analyst sees risk from new platforms and methods of marketing that may offer more compelling options to consumers. Potential positive catalysts from mobile monetization improvements, YouTube ad growth, and greater visibility on expenses against: 1) continuing competition to search a) on the fast-growing mobile platform, b) in the application of social signals to commerce, and c) from vertical search/e-commerce platforms, and 2) increasing competition for YouTube from video offerings on social platforms and extensions of classic TV networks.



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