What happened
Shares of Shopify (SHOP 0.28%) are falling in today's trading. The company's share price was down roughly 9.5% as of 11:15 a.m. ET on Wednesday.
There isn't any fresh business-specific news that should be prompting investors to sell out of Shopify stock, but the company's share price is being negatively impacted by recent earnings results from another company that's considered a bellwether for the tech sector. Netflix (NFLX 0.19%) published its first-quarter results yesterday, and the shocking results prompted a wave of pullbacks for stocks that trade at growth-dependent valuations.
Image source: Getty Images.
So what
Netflix released its Q1 results on Tuesday, and the results were disappointing enough to cause investors to reassess growth stocks as a whole. The company had previously forecasted that it would add 2.5 million net subscribers in the quarter, but it actually lost 200,000 net subscribers in the period.
The company pointed to ending service in Russia as reason for losing 700,000 subscribers from that geographic market in the period and stated it would have actually gained 500,000 subscribers were it not for that adverse impact. However, that would have still represented a dramatic shortfall compared to management's earlier guidance and the market's expectations, and the worrying results have had ripple effects on valuations for other growth stocks.
Even worse, the streaming-video leader anticipates that it will lose 2 million additional subscribers in the current quarter. As of this writing, Netflix stock was down roughly 36.5% in today's trading.
Now what
The market has already been taking a more cautious stance on Shopify as investors have become more risk averse and the e-commerce services company has faced waning pandemic-driven tailwinds.
While Netflix's Q1 performance and guidance for Q2 are undeniably disappointing and appear to be causing the market to assign lower valuation multiples to growth stocks at large, there's little in the way of industry overlap between it and Shopify. It doesn't seem sensible to sell Shopify based on Netflix's results, and the recent pullback for the e-commerce stock has likely created a worthwhile buying opportunity.
