Even solid financial reports aren't enough for many investors right now.
Key Points
- Markets were largely lower on Wednesday.
- High-growth stocks have led the market higher over the past year.
- However, two of those stocks fell sharply after hours on earnings.
The stock market had a tough day on Wednesday, although the NASDAQ managed to gain a bit of ground despite pressure elsewhere. Two countervailing factors are forcing investors to maintain a balancing act, as corporate earnings have remained generally strong but economic data continues to show ongoing weakness. Declines for the S&P 500 and the DJIA reflected anxiety about what the future might bring.
Index |
Percentage Change |
Point Change |
|---|---|---|
Dow |
(0.92%) |
(324) |
S&P 500 |
(0.46%) |
(20) |
Nasdaq Composite |
+0.13% |
+19 |
DATA SOURCE: YAHOO! FINANCE.
Roku Inc and Etsy have been a couple of the most exciting companies for investors over the past year. However, despite solid quarterly results, both stocks fell sharply in after-hours trading. Below, we'll look more closely at the reports to identify what went wrong for the growth stocks.
Roku sees viewers touch their dials
Shares of Roku were down more than 8% in after-hours trading on Wednesday afternoon. The streaming TV specialist saw solid growth, but a couple of numbers troubled investors.
Many of Roku's numbers were highly impressive. Revenue jumped 81% in the second quarter of 2021 from year-ago levels, with platform-related sales more than doubling year over year. Average revenue per user was up 46%, and Roku reversed a year-ago loss with earnings of $0.52 per share.
However, investors seemed to focus on a single business metric. Hours spent watching streaming TV among Roku's 55.1 million active accounts came in at 17.4 billion. That was down 1 billion hours from where it was three months ago, despite the fact that Roku had 1.5 million more active accounts during that timeframe. Shareholders seemed to take that as cause for lasting concern, rather than simply seeing it as a consequence of the reopening.
Roku's long-term prospects still look strong, especially as The Roku Channel continued to gain traction. Many will see the after-hours drop in its stock as a rare opportunity to buy on a pullback.
Meanwhile, shares of Etsy took an even harder hit. The craft goods marketplace's stock was down more than 13% after hours on Wednesday.
Etsy's second-quarter results saw growth continue, but at a slower pace than investors have seen in the past. Sales climbed 23% on a 13% rise in consolidated gross merchandise sales. Net income inched higher by 2%, with earnings coming in at $0.68 per share. The company cited an anticipated reduction in new buyer growth as the economy reopened, arguing that even the 8 million new buyers on Etsy's marketplace was a substantial victory and more than pre-pandemic numbers from 2019.
Etsy also chose not to give full-year guidance, raising some eyebrows among investors. The company expects revenue of $500 million to $525 million for the third quarter, which would mean a continued slowing of growth to just 13.5% year over year.
Naysayers have seen Etsy as purely a one-time beneficiary of people having had to remain home during the early part of the pandemic, and they've expected a pullback like the one the stock is seeing today. However, Etsy has put a number of initiatives in place to foster longer-lasting growth, and it'll be interesting to see if growth investors jump at the chance to pick up shares of Etsy at a bargain.