By October 2014 standards, Thursday was an unusual day on Wall Street: the stock market didn’t post huge gains or losses — it just went sideways.
Shares of Netflix (NFLX), Southwestern Energy (SWN) and eBay (EBAY) didn’t go sideways, though. They all plunged, ending as three of the worst stocks in the entire market.
Comments by the president of the St. Louis Federal Reserve helped to inspire some confidence in our global economic future, as James Bullard said the central bank should consider extending its quantitative easing program beyond October.
On top of that, weekly jobless claims fell by 23,000 to 264,000 last week, the lowest level since April 2000, back when a fellow by the name of Bill Clinton was president. So if the S&P 500 traded at breakeven levels and no horrendous news hit the markets today, why did these three stocks fall?
Netflix (NFLX)
Shares of video streaming service Netflix cratered on Thursday, shedding more than 19% in by the ring of the closing bell. Even after today’s precipitous fall, NFLX stock is up more than 600% in the last five years as Wall Street fell in love with the growth prospects of the Los Gatos, California-based company.
And, as InvestorPlace’s own Dan Burrows trenchantly notes, Netflix’s growth story has kept valuations irrationally elevated, setting shares up for a horrible hit today when these three bearish catalysts materialized:
“The only thing baked into NFLX stock is a fantasyland of unlimited subscriber growth and wee elves riding unicorns. The market never thinks to mark earnings multiples down for risks like, oh, say, slower U.S. subscriber growth, HBO coming to beat you down on your own turf or — oops — a profit warning.”
Southwestern Energy (SWN)
Houston-based oil and natural gas explorer Southwestern Energy also saw shares sell off heavily today, as SWN stock lost more than 10% in trading. The selloff comes on news of a $5.38 billion deal to acquire more than 400 wells on the Marcellus and Utica shales from Chesapeake Energy (CHK). The move is part of CHK’s continued efforts to shore up its balance sheet through asset sales.
While SWN stock took a hit today, the company is betting that energy prices will recover while simultaneously taking advantage of a cash-strapped competitor to boost its own production capacity. I think today’s acquisition is a wise long-term move for SWN.
Ebay (EBAY)
Lastly, shares of online auctioneer eBay lost 4.7% today after the company reported lackluster third-quarter results. Despite the fact that eBay beat earnings per share estimates by a penny in the most recent quarter, investors were more concerned with the revenue miss and, more importantly, the weak fourth-quarter guidance. As I noted earlier this morning,
“Wall Street was looking for revenue around $5.16 billion and EPS of 91 cents in the holiday quarter. Ebay projected sales in the range of $4.85 billion and $4.95 billion and EPS between 88 cents and 91 cents in the quarter.”
At the end of the day, EBAY stock is doomed if it loses the battle for e-commerce business in the fourth quarter.
As of this writing, John Divine did not hold a position in any of the aforementioned securities.
