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Why Pinterest, Square, and Lemonade Stocks Took a Hit on Wednesday

By Daniel Sparks – Updated Sep 29, 2021 at 5:03PM

Key Points

  • Investors are turning away from volatile growth stocks and looking for more stability.
  • Shares of Pinterest have fallen more than 35% over the past three months.
  • Lemonade's rapidly increasing operating expenses may be spooking some investors.

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As the Nasdaq Composite turned red Wednesday afternoon, these three stocks sold off even more.

After the Nasdaq Composite started off Wednesday with a nice gain, the index slipped to a slight decline by 1 p.m. EDT. Many growth stocks, however, fell even more. Three notable growth stocks that declined several percentage points or more were visual search and media platform Pinterest (PINS -2.81%), financial technology company Square (SQ -1.43%), and insurer Lemonade (LMND 0.79%).

At about 1 p.m. EDT, shares of Pinterest, Square, and Lemonade were down about 2.2%, 2.5%, and 2.9%, respectively.

A chart showing a stock price rapidly declining.

Image source: Getty Images.

Pinterest

Shares of Pinterest have taken a huge beating in recent months, driven both by a broader-market decline (particularly for growth stocks) and news that the social media platform's monthly active users in the U.S. declined 7% year over year during the first 27 days of July. In addition, global growth in monthly active users slowed from 9% year over year in the second quarter to 5% in July, management said in the company's second-quarter earnings release in late July. 

Pinterest stock has lost more than a third of its value over the last three months, and shares are down 11% over the last 30 days.

Of course, investors shouldn't base their opinion of whether a stock is a good investment or not based solely on the market's latest sentiment toward it. It's worth noting that Pinterest's top and bottom lines are growing very rapidly. Analysts, on average, expect third-quarter revenue to grow 43% and non-GAAP (adjusted) earnings per share to nearly double.

Square

Square stock has similarly had a rough month, sliding 12% over the past 30 days. Its decline has largely been due to the same challenging market dynamics for growth stocks that have weighed on Pinterest lately.

Despite the pressure on the stock recently, Square's underlying business is doing very well. Second-quarter revenue, when excluding revenue from Bitcoin transactions, grew 87% year over year. The company's gross profit soared 91%. 

Lemonade

Shares of Lemonade have been beaten up even more than Pinterest and Square over the last 30 days, falling more than 14%.

The innovative insurance company has seen rapid growth in customers and in premiums per customer. Total customers in Q2 rose 48% year over year to more than 1.2 million. The average premium per customer increased 29% year over year to $246.

But Lemonade's business economics are proving challenging. Its Q2 operating expense increased from $30.1 million in the year-ago quarter to $68.1 million -- a 126% increase. Could the high costs to Lemonade's growth be spooking some investors as the Street's appetite for growth stocks dwindles? 

Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Lemonade, Inc., Pinterest, and Square. The Motley Fool has a disclosure policy.

Stocks Mentioned

Block Stock Quote
Block
SQ
$68.18 (-1.43%) $0.99
Pinterest Stock Quote
Pinterest
PINS
$24.86 (-2.81%) $0.72
Lemonade Stock Quote
Lemonade
LMND
$19.14 (0.79%) $0.15

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

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