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These High-Growth Stocks Are Getting Hammered After Hours

By Dan Caplinger – Aug 4, 2021 at 6:58PM

Key Points

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Even solid financial reports aren't enough for many investors right now.

The stock market had a tough day on Wednesday, although the Nasdaq Composite (^IXIC -0.18%) 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 (^GSPC -0.12%) and the Dow Jones Industrial Average (^DJI 0.10%) 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 (ROKU 1.59%) and Etsy (ETSY 0.79%) 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.

Four people on a couch with glow from a television.

Image source: Getty Images.

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.

Etsy takes a dive

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.

Dan Caplinger owns shares of Etsy. The Motley Fool owns shares of and recommends Etsy and Roku. The Motley Fool has a disclosure policy.

Stocks Mentioned

Roku Stock Quote
Roku
ROKU
$60.73 (1.59%) $0.95
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$34,429.88 (0.10%) $34.87
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,071.70 (-0.12%) $-4.87
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
^IXIC
$11,461.50 (-0.18%) $-20.95
Etsy Stock Quote
Etsy
ETSY
$140.49 (0.79%) $1.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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