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Visa Sinks the Dow Jones

By Dan Carroll - Jul 25, 2014 at 1:59PM

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Pandora also dives on earnings worries in a downbeat end to the week for investors.

The market's weathering a tough end to the week as earnings season pushes on, with the Dow Jones Industrial Average (^DJI -0.57%) enduring withering losses so far today. As of 2:30 p.m. EDT, the Dow has dropped by more than 130 points, with all but a handful of stocks in the red. Visa (V -0.85%) has been the biggest drag on the Dow so far: The credit card giant has plunged about 4%. Outside the Dow, earnings season has punished some of the market's top stocks, with Pandora (P) plummeting 11% so far. Let's catch up on what you need to know.

Is Visa's drop justified?
Visa's big drop today shows the power of stocks with high price tags on the Dow Jones. Visa, with a price of more than $200 per share, has the most influence on the price-weighted Dow Jones -- and on days when this stock takes a big hit, the Dow goes right along with it.

Source: Wikimedia Commons.

And yet Visa actually managed to post respectable earnings for the second quarter. The credit card giant released quarterly earnings of $2.17 per share, gaining 11% year over year and topping average analyst expectations of $2.10. The company's revenue also impressed with a strong 5.1% gain that meet Wall Street's predictions. Total transactions jumped by a whopping 11% as customers embraced credit cards over cash, with payments jumping 12% for the quarter.

Yet it wasn't earnings that soured investors on this stock today, but guidance. The company pared its revenue outlook for the full year down to 9%-10% growth from an earlier projection of 10%-11%. Visa cited the strong dollar, along with political and economic instability in Eastern Europe and the Middle East, and the company announced that it expects sizable losses in Russia in the near future.

For long-term investors, however, the small drop in revenue guidance isn't worth a 4% stock plunge. Visa's strong second quarter shows that consumers are flocking back to credit cards amid the ongoing American economic recovery. So long as that trend continues, this company will be in prime position to capitalize -- and keep its stock moving higher overall.

Outside the Dow, Pandora's stock has endured the same sort of investor wariness today following its own earnings report. The company's overall net losses widened in its most recent quarter, with losses accelerating by more than 70% year over year to $11.7 million -- a much sharper headache than the $6.8 million Pandora lost this quarter a year ago.

In a lone bright spot, revenue at Pandora has picked up, climbing 38% as advertising sales jumped by 39%. Active listeners rose substantially as well, with listener count growing by 7.5%. Still, until Pandora can turn revenue and increasing users into growing profit, rather than losses, this stock could be in trouble -- particularly after dropping more than 14% over the past six months. With competition mounting in the space, Pandora needs to find new routes to unlocking strong growth.

Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Pandora Media and Visa. The Motley Fool owns shares of Pandora Media and Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$33,804.73 (-0.57%) $-194.68
Pandora Media, Inc. Stock Quote
Pandora Media, Inc.
P
Visa Inc. Stock Quote
Visa Inc.
V
$213.43 (-0.85%) $-1.82

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

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