Why Warby Parker and Twilio Led Stock Markets Broadly Lower Monday

Monday didn't provide the hoped-for continuation of Friday's big bounce in the stock market. Instead, Wall Street seemed to return to its past worries about the economic situation, inflationary pressures, and geopolitical conflict. The Dow Jones Industrial Average (^DJI 0.56%) managed to grind out a small gain, but the S&P 500 (^GSPC -0.88%) and Nasdaq Composite (^IXIC -2.05%) were both down on the day.

Data source: Yahoo! Finance.

Among declining stocks, Warby Parker (WRBY 1.43%) lost ground after the maker of eyeglasses reported its latest quarterly financial results. Meanwhile, Twilio (TWLO -1.49%) fell as investors digested comments from Wall Street analysts about the software-as-a-service (SaaS) company's prospects. You can find the details below.

Warby Parker's future looks cloudy

Shares of Warby Parker were down more than 5% on Monday. The direct-to-consumer vision specialist reported first-quarter financial results that included some favorable numbers but still raised questions about what's coming down the road.

Image source: Getty Images.

Warby Parker's numbers showed incremental growth . Revenue was up 10% to $153 million, with growth rates falling back slightly from year-ago levels amid a challenging macroeconomic backdrop. Active customer counts were up 18% from 12 months ago to 2.23 million, and average spending per customer also moved nicely higher. Moreover, Warby Parker said that its revenue growth would have been even higher had it not been for the omicron COVID-19 variant, which cost the company about $15 million in lost sales.

However, the vision specialist had to deal with headwinds. A larger sales mix of contact lenses cost the company almost two percentage points of gross margin to 58.5%, and a rise in overhead expenses led to a loss of $34 million for the quarter. Even adjusted pre-tax operating earnings barely broke even.

Nevertheless, Warby Parker boosted its store count by eight to 169 locations, and it still sees sales rising 20% to 22% in 2022 compared to last year. Investors don't seem to have as much confidence that the company can make up the shortfall during the rest of the year, but Warby Parker still believes it's benefiting from favorable trends in its industry.

Twilio deals with a downgrade

Elsewhere, shares of Twilio dropped more than 10%. The cloud-based communications platform provider got negative comments from a Wall Street analyst on Monday that contributed to a downbeat view of the company.

Analysts at Baird downgraded Twilio from outperform  to neutral on Monday. They also cut their target price on the stock by $35 per share to $120. In Baird's view, SaaS companies that haven't been able to reach consistent profitability or free cash flow are at a growing competitive disadvantage in the evolving economic environment. With costs of capital likely to keep rising, it'll be tougher for companies like Twilio to count on getting money if and when they need it.

Yet there were signs that the analyst move was only part of a broader negative tone in the tech industry. Even the stocks that Baird recommended as alternatives also lost ground on the day. The outsized downward impact on tech showed up in the Nasdaq's relatively larger loss than the S&P 500's.

Twilio is down more than 75% from its highs, and Baird's new target is 20% above the stock's closing price on Monday. Even with tech stocks  having taken hard hits, it's impossible to predict exactly when favorable fundamental business prospects will start to shine through to share prices in the industry.