5 Reasons to Worry About Next Week

The economy is showing signs of fumbling the recovery.

It's not just Wednesday's brutal drop. The Dow suffered its largest decline since late last year, but that's just a snapshot of Mr. Market's larger mosaic. There is now a real urgency in solving the fiscal cliff that awaits at the other end of next month, and there may never be the ideal compromise to spare the economy.

There are more than a few companies that aren't pulling their own weight in this supposed economic recovery.

There are still plenty of names posting lower earnings than they did a year ago. Let's go over a few of the companies that are expected to go the wrong way on the bottom line next week.

Source: Thomson Reuters.

Clearing the table
Let's start at the top with Renren.

China's leading social networking website is growing. Analysts see revenue soaring 42% in its latest quarter. Renren's problem is turning a profit. After breaking even four quarters ago, the website operator has rattled off three consecutive quarterly losses. Wall Street's holding out for a small deficit this time around.

Investors aren't buying into Solazyme for today's profit potential. Sure, it's making welcome headway in transforming a range of low-cost plant-based sugars into high-value oils, but the real payoff will come in a couple of years.

However, investors simply can't ignore the red ink. Continuing losses require capital replenishment, and Solazyme has actually posted larger losses than Wall Street was expecting in three of the past four quarters. In other words, don't be surprised if it records a loss larger than the $0.38-a-share deficit that the pros see Solazyme reporting on Wednesday.

Staples surely misses the days when a simple tap of its "easy" button would take care of things. The country's leading office supply retailer is in a bind. Back in September it announced that it would be closing down stores and unloading its European printing business.

Things could be worse. It could be one of its more troubled rivals.

It's hard selling office supplies these days. Corporate America is still regaining its swagger. There's also something to be said about the bearish thesis that companies don't need to go through as many toner cartridges or ledger pages in this age of connectivity.

GameStop knows that it's in a fading industry. Traditional video game sales have been falling for three years. GameStop was able to hold up well early in the demise. Selling pre-owned games and gear at ridiculous markups provided the small-box retailer with a thriving business commanding huge margins.

Well, now folks aren't buying or trading in games anymore. Digital delivery is the future, and that means lean times for GameStop.

Sure, the company has made acquisitions that will give it some skin in digital gaming, but it won't be enough to offset the slide at its namesake stores.

Yes, at least GameStop is profitable. That's obviously a good thing. Sales could always be slipping by more than the 8% that Wall Street is targeting here when it reports on Thursday. However, after several valiant years of bucking the gaming industry's slide, it seems as if GameStop is ready to go with the flow.

SINA is an online pioneer in China. These days it is best known for SINA Weibo, a Tumblr-like microblog that many consider the Twitter of China. Manning a site that is rich in traffic but light on monetization possibilities has been a challenge for SINA. Revenue is still growing, but margins are getting squeezed.

The good news for SINA is that it has beaten Wall Street profit estimates in three of the past four quarters, but it's not likely to be enough. Analysts see SINA earning less than half as much as it did a year earlier.

Why the long face, short-seller?
These companies have seen better days. The market has rewarded many of these stocks with reasonable gains over the past year, but they still haven't earned those upticks. Lower earnings translates into higher earnings multiples, and nobody wants to see that happen.

The good news here is that Wall Street already expects these companies to deliver shrinking bottom lines. In other words, the bad news is already baked into the shares.

The more I think about it, the less worried I become.