What happened
Beaten-down and out-of-favor growth stocks Fastly (FSLY +5.15%), Pinterest (PINS 1.30%), and Skillz (SKLZ 3.61%) were all up big today. The stocks increased a respective 6.8%, 6.6%, and 7.4% as of 3:30 p.m. ET.
There was no specific news causing the rally, but all three names have been volatile in the last month or so since the omicron variant showed up. It caps a terrible 2021 for the three fast-growing businesses as general investor sentiment has favored value stocks in year two of the pandemic. Fastly is down 57% on the year, Pinterest is down 42%, and Skillz is down 61%.
Image source: Getty Images.
So what
High-growth but loss-generating businesses are out of favor at the moment. For Fastly, its sales growth has slowed to a mere mid-teens percentage pace as it copes with a widespread service outage suffered this past summer. The next-gen internet content delivery network remains optimistic about its long-term prospects but is still far from generating a profit (measured by either net income or free cash flow).
Same goes for esports outfit Skillz, which offers investors a mixed bag of fast growth (revenue up 70% year over year last quarter) but steep losses: adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of negative $41.7 million on sales of $102 million. The recent issuance of new debt has also helped sour investors' appetite for Skillz.
In contrast, Pinterest is actually profitable, having generated a very healthy 15% net profit margin in its last quarter. However, the social media company's trajectory has been losing steam as many users have been spending more time away from home this year. Monthly average user growth, an important metric for social network firms, is showing signs of possibly stalling out as Pinterest laps the boom in internet use from 2020.
Now what
It's been a roller-coaster ride of emotions for high-growth stock investors this year, and shareholders are being treated to one more bout of volatility just before 2022 gets under way. But bear in mind such wild up-and-down action is normal for small firms with big potential.
As for these three stocks specifically, each company could benefit from lapping much easier financial results (versus lapping the 2020 online service sales boom this past year). If each business can sustain revenue growth, or even accelerate from their most recent results, 2022 could have far better things in store for patient investors.
