The stock market didn't get everything it wanted on Thursday morning, and share prices were broadly lower early in the trading session. Although losses for the Nasdaq Composite (^IXIC +0.24%) were minimal at about 0.2% as of 10 a.m. ET, other major market benchmarks lost more than 1%.
One problem that has market participants worried is the ongoing crisis in the regional banking sector. There aren't many banks listed on the Nasdaq, but PacWest Bancorp (PACW +0.00%) is, and it released some troubling news that sent its shares still lower.
However, another Nasdaq stock suffered even steeper declines, as Sonos (SONO +0.22%) wasn't able to give shareholders the results they wanted to see. Below, you'll learn more about both stocks and what implications they have for the broader market.
PacWest faces tough times
Shares of PacWest dropped almost 20% Thursday morning. The regional bank continued to see pressure on its balance sheet as depositors pulled money out of their accounts, and a filing with the Securities and Exchange Commission described in greater detail what has been happening at PacWest.
Its quarterly 10-Q filing with the SEC included a section on the impact of the closure of First Republic Bank. During the week that ended May 5, PacWest's deposits fell by about 9.5%, with most of that drop coming after news reports that PacWest was exploring various strategic options and entering into discussions with prospective investors and other partners.
NASDAQ: PACW
Key Data Points
PacWest subsequently tried to reassure shareholders that the situation remains under control. According to the filing, PacWest pledged $5.1 billion in loans to the Federal Reserve, giving it additional discount window borrowing capacity of $3.9 billion.
After that latest move, the bank still has liquidity of $15 billion that is immediately available at will. That is almost triple the $5.2 billion in uninsured deposits on its balance sheet.
Nevertheless, investors aren't comfortable that PacWest won't see further deterioration in its customers' willingness to stick by the bank. Given the experience of some of its peers, those worries seem warranted, but bank regulators have a lot at stake in ensuring that the recent string of bank failures doesn't add more financial institutions to the list.
Sonos deals with falling consumer demand
The damage to Sonos stock was even more extensive, as share prices fell 23% in morning trading on Thursday. The maker of speaker systems saw big drops in revenue and income in its fiscal second quarter, which ended April 1.
The hit to Sonos' business was severe. Revenue plunged 24% year over year to $304 million. Gross margin dropped 1.5 percentage points to 43.3%, resulting in a loss of $30.7 million. Even after making accounting-related adjustments, net income of $5.7 million on an adjusted basis was down nearly 85% from year-ago levels and worked out to just $0.04 per share. Sonos saw some other troubling signs, as free-cash outflows soared to $122 million and inventory levels rose 7% over the past three months to $326 million.
NASDAQ: SONO
Key Data Points
CEO Patrick Spence noted that softening consumer demand and inventory tightening for its retail-channel partners have hurt Sonos' results. Moreover, the company cut its guidance for the remainder of fiscal 2023, and now expects sales of $1.625 billion to $1.675 billion, down by $75 million to $125 million from its previous range. That would represent a drop of 4% to 7% from fiscal 2022.
Investors want to see consumer demand for big-ticket items remain robust, so the news from Sonos was troubling. With the stock now down about 60% from 2021 highs, shareholders can only hope that an eventual consumer recovery will restore demand in the long run.
