What happened
Shares of Pinterest (PINS -0.52%), Match Group (MTCH 0.79%) and Vimeo (VMEO 0.43%) declined 18.7%, 14.8%, and 18.4%, respectively in January, according to data from S&P Global Market Intelligence.
All three stocks are consumer-facing software applications -- Pinterest in social media, Match in dating apps, and Vimeo in high-quality streaming video. The only company to disclose anything financial-related during January was Vimeo, which releases certain metrics on a monthly basis. Pinterest and Match Group recently reported earnings, but not until the calendar turned to February.
Therefore, it's likely the January declines had more to do with marketwide fears over inflation and the path of interest rates.
Image source: Getty Images.
So what
In January, the Bureau of Labor Statistics released December inflation numbers that came in at 7% over the prior year -- the highest reading since 1982. Inflation fears permeated the market in January, which prompted many investors to sell off growth stocks of all kinds, including these three. Higher inflation eats away the value of earnings well off into the future, which is why growth tech stocks were punished so severely.
Now, these three stocks aren't nearly as expensive as some of the other enterprise software stocks that also sold off hard in January. Still, they aren't exactly cheap, either. Pinterest trades around 60 times earnings, Match Group trades at 120 times earnings, and Vimeo isn't profitable, but it does trade at a reasonable 6 times sales. So while it may not have been fair, these stocks weren't able to escape the tech stock swoon.
But there may be something more to these declines besides fears over higher interest rates. If consumers are paying higher prices for necessities like food, energy, and shelter, that leaves less leftover for discretionary purchases. The same goes for businesses, who may not be able to invest as much in advertising on Pinterest's platform, or may not pay for as many Vimeo video subscriptions.
Of note, Vimeo's December monthly numbers, reported in January, did show a deceleration in growth. Vimeo's preliminary December revenue grew 23%, a deceleration from November's 27% and a big deceleration from the prior-year December's 57% growth, during the pandemic.
PINS Percent Off All-Time High data by YCharts
Now what
In addition to Vimeo's deceleration, Pinterest just reported fourth-quarter earnings on Feb. 3. While revenue grew 20%, margins compressed, and monthly active users (MAU) actually declined 6%. This is likely because Pinterest was lapping the pandemic, when many were both stuck at home and looking for home décor and home activity ideas, which is where Pinterest excels. Now that the pandemic is receding, some of those users aren't sticking around.
Meanwhile, Match also reported last week on February 1, and its results also missed both revenue and earnings expectations. Ironically, Match Group may benefit from the receding pandemic, as the world's leading portfolio of dating apps; however, omicron threw a wrench into things in the fourth quarter.
With Match down 38% from all-time highs, and Pinterest and Vimeo down a much more severe 72%-plus from their highs, now may be the time to start looking into these stocks. However, while these stocks are much more affordable now after a rough January, none seems "screamingly" cheap. Match is already a leader in online dating with a big international presence, so it's unclear how much growth is really ahead of it. Pinterest's MAU declines are very concerning, perhaps suggesting the company has tapped most of its addressable market. Vimeo looks awfully cheap after its 77% decline, but with decelerating revenue growth and continuing operating losses, it's still a risky bet as rates rise.
While the majority of their declines may be behind these stocks, that doesn't necessarily mean there's material upside in the cards, either. I think 2022 will either favor value stocks that trade at much cheaper valuations, or growth stocks that can actually maintain or even accelerate their growth rates. None of these three stocks appears to have that in the cards this year, unfortunately.
