Why Are Stocks Falling This Earnings Season?

Friday saw another round of jaw-dropping stock sell-offs following earnings announcements, with Roku (ROKU) stock falling 23 percent. DraftKings (DKNG) stock plummeting 22 percent — the second-worst one-day performance for both stores. This quarter, investors have seized on concerns about slowing growth prospects for companies across a wide range of industries; this resulted in nightmare earnings reactions.

Thanks to an increasingly hawkish Federal Reserve and a potential land war in Europe, investors are facing a perfect storm of headwinds. Nonetheless, earnings continue to be the driving force behind the growth of the US equity capital markets. Yahoo Finance crunched the numbers; it looked at the S&P 500 components and the top Yahoo Finance trending tickers over the last year. It found the most significant one-day performance meltdowns.

LendingClub is the company with the worst post-earnings performance (LC). The stock plummeted 29 percent in a single session in late January after issuing annual profit guidance that fell short of expectations. If we look for themes, we can see that the threat of higher short-term interest rates is dampening growth prospects. Plus, LendingClub is a meme stock, as is 1-800-Flowers.com (FLWS). However, the go-to Valentine’s Day store recently posted results that may speak to the broader supply chain and demand issues afflicting consumer-facing industries. Following disappointing quarterly results, Benchmark maintained its Buy rating on the stock.

Roku Stock and Meta’s Earnings

Roku stock has more than doubled in value from mid-2020 to early 2021, rising from $100 per share to nearly $500 in less than a year. A casual reader forgives for mistaking the above chart for a meme stock. However, this $15 billion company — $60 billion at its peak — has $2.8 billion in annual revenue.

What are Meta’s earnings? Last year, a whopping $133 billion was spent. Despite this, the stock is trading like a small-cap biotech company that recently announced a phase 3 trial failure. Except that its market cap plummeted by a quarter trillion dollars — the most prominent value wipeout in history — the day after it announced stagnant user growth and a $10 billion loss on its metaverse investment. Whether they’re referring to as daily active users, subscribers, or simply consumers, they’re either growing at a much slower rate than expected, or they’re simply dropping out.

Then there’s PayPal (PYPL), whose chart resembles a meme more than Roku’s. These stock routs aren’t restricted to a single industry if we’re looking for a theme. It all boils down to growth factors, interest rate sensitivity, balance sheet strength, and overall structural positioning within the new post-pandemic norm.