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These 2 Stocks Could Foretell the Market's Moves on Tuesday

By Dan Caplinger – Aug 2, 2021 at 7:37PM

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After-hours earnings reports showed a clear trend.

The stock market was volatile on Monday, initially pushing higher but giving up ground over the course of the day. By the close, the Dow Jones Industrial Average (DJINDICES: ^DJI) and S&P 500 (SNPINDEX: ^GSPC) were down for the day, while the Nasdaq Composite (NASDAQINDEX: ^IXIC) just barely managed to cling onto a tiny gain.

Index

Percentage Change

Point Change

Dow

(0.28%)

(97)

S&P 500

(0.18%)

(8)

Nasdaq Composite

+0.06%

+8

Data source: Yahoo! Finance.

Earnings season has revealed a lot about what companies expect in the second half of 2021, and many stocks have made disappointing moves even after companies give out better results than most had expected. Monday afternoon, it was Arista Networks (NYSE: ANET) and Take-Two Interactive Software (Nasdaq: TTWO) that were on display, and like some of their peers, both stocks moved lower following their financial releases. Below, we'll take a closer look at their reports to see why their declines could send the market lower Tuesday.

Arista sees financials bounce back

Shares of Arista Networks fell almost 1% in the regular session on Monday, and then added a further decline of more than 1% after hours. Investors reacted slightly negatively to the tech company's second-quarter financial report.

By all indications, Arista did a good job bouncing back from last year's challenges in the second quarter of 2021. Revenue came in up 31% year over year, and adjusted net income rose nearly 30%. Adjusted earnings of $2.72 per share were better than most investors had looked to see from Arista.

Person working on servers.

Image source: Getty Images.

Moreover, Arista's business met some key milestones. The company reached the 50 million mark in selling cloud network ports, and it launched a new ultra-low latency switch to help speed up transactions for financial-services applications. Moreover, Arista kept moving forward with its campus networks business.

Yet investors seemed nonplussed by Arista's guidance for the third quarter, which projected revenue of between $725 million and $745 million. That would represent just 4% sequential growth, which might have some shareholders worried that the big tailwinds Arista has gotten from digital transformation efforts might finally be starting to slow.

Is Take-Two losing the game?

Meanwhile, shares of Take-Two Interactive Software dropped more than 3% after hours after a tiny decline in the regular session. Shareholders weren't pleased at some of the trends in the video game specialist's fiscal first-quarter financial report.

Some of the numbers from Take-Two certainly did look disappointing. Revenue was down 2% from year-ago levels, with the company continuing to get top sales contributions from the latest installments in its NBA 2K and Grand Theft Auto franchises. However, Take-Two's bottom line strengthened, with net income climbing 72% year over year and earnings coming in at $1.30 per share.

Investors didn't like comments from CEO Strauss Zelnick, which included news on some game delays. The executive said that two of its core titles will see their releases shifted until later in the current fiscal year than it had previously expected. That will force investors to wait potentially until fiscal 2023 to start seeing sequential growth and new record operating results.

Take-Two routinely goes through longer-term cycles like this, corresponding largely to when hit game releases occur. Strategic moves could bolster the video game company's longer-term growth, but investors need to be prepared for short-term headwinds to continue in the near future. That's true not just with Take-Two but also with enough of the broader market to weigh on stocks generally.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Take-Two Interactive and Arista Networks and recommends the following options: long January 2023 $115 calls on Take-Two Interactive. The Motley Fool has a disclosure policy.

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