The stock market has been on pins and needles throughout 2022, as the macroeconomic and geopolitical situation has steadily worsened. Friday morning's report on consumer prices only added fuel to the fire, and the Nasdaq Composite (^IXIC 1.59%) took the brunt of the resulting hit in the stock market. As of 11:45 a.m. ET, the Nasdaq was down 3.5%, flirting with its lowest level since late 2020.
Losses among some of the key growth stocks that led the Nasdaq's charge higher from early 2020 to late 2021 are hurting investor confidence in the market overall. Two more Nasdaq stocks, DocuSign (DOCU +1.00%) and Stitch Fix (SFIX 0.92%), reported earnings results that weren't able to reassure shareholders about their longer-term prospects. That's leading some investors to wonder whether growth stocks more broadly will ever be able to recover from their recent declines. Below, we'll look at the two earnings reports from DocuSign and Stitch Fix and then try to draw some conclusions about growth stocks in general.
DocuSign signs off
Shares of DocuSign fell 25% on Friday morning, in the wake of its release of its fiscal first-quarter results for the period ending April 30. The electronic document specialist tried to accentuate the positives of its business, but investors were looking for much more substantial growth and were therefore disappointed by the reality of the current industry environment.
DocuSign reported that revenue rose 25% year over year to $589 million, with the vast bulk of that money coming from subscription-based sales. Billings grew at a slower 16% pace to $614 million. Free cash flow was higher by 42% to $175 million. Although DocuSign remained profitable on an adjusted basis, earnings of $0.38 per share were down from last year's $0.44 per share for the same period.
NASDAQ: DOCU
Key Data Points
Moreover, DocuSign expects difficult conditions to continue. For the full 2023 fiscal year, the company kept its overall sales guidance unchanged, but it slashed its billings guidance by $185 million to a new range of $2.52 billion to $2.54 billion.
DocuSign has more than a billion users worldwide, with a global customer base of 1.24 million clients. Yet even as it expands its Agreement Cloud product to encompass a wider range of services for customers, DocuSign hasn't been able to convince growth-oriented investors that it can sustain the impressive pace of expansion it saw in recent years.
Stitch Fix faces layoffs
Elsewhere, shares of Stitch Fix fell 13%. The subscription service for curated apparel and accessories deliveries reported fiscal third-quarter financial results for the period ending April 30 that showed continuing difficulties for the business.
Stitch Fix's business performance showed reduced demand. Revenue fell 8% from year-ago levels to $493 million. Active clients fell 200,000 to 3.91 million, while the company posted a net loss of $78 million.
NASDAQ: SFIX
Key Data Points
Strategically, Stitch Fix took the difficult step of announcing a 4% workforce reduction, most of which will come from a 15% cut to salaried positions. That and other cost-cutting measures should save the company about $40 million to $60 million in its next fiscal year.
However, it won't help Stitch Fix's financial outlook for the remainder of the current fiscal year. The apparel curation specialist sees revenue falling 13% to 15% year over year in the fiscal fourth quarter, with negative adjusted pre-tax operating earnings even without accounting for its restructuring and other one-time charges.
Economic challenges hurt growth stocks
It's been a while since investors saw a rapidly slowing economy, and far rarer is when a slowdown comes with inflation. That confluence is having a big negative impact on growth stocks, both in terms of their perception among shareholders and in their underlying business performance.
The best growth stocks are those that are still seeing solid expansion in their core businesses. For the most part, the falling market has punished growth stocks without regard to their operational success. Companies with strong and durable business models are the ones most likely to come out of an adverse business cycle and recover in the long run.
