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Why Zoom Video, Fastly, and Square Stocks All Fell Sharply Today

What happened

Shares of Zoom Video Communications (NASDAQ: ZM), Fastly (NYSE: FSLY), and Square (NYSE: SQ) were all hit hard on Tuesday. The three stocks were pummeled along with a broader-market sell-off that was led by tech and growth stocks.

A sell-off in growth and tech stocks today was likely due to a number of reasons, including inflation fears, worries about potential future tax hikes, and an overall downward trend for growth stocks in general recently.

Shares of Zoom, Fastly, and Square fell as much as 4.8%, 7.1%, and 6.2%, respectively, though the stocks were down about 3.9%, 4.6%, and 5.3% as of 1:56 p.m. EDT.

Image source: Getty Images.

So what

Growth stocks haven't fared well since January and early February, when many of them were hovering around all-time highs. The market has punished these stocks following their stellar performance last year after many of them more than doubled. Shares of video collaboration platform provider Zoom, edge computing specialist Fastly, and fintech company Square, for instance, surged 400%, 335%, and 250%, respectively. It's not too surprising, therefore, that these stocks have taken a breather recently.

Of course, worries about inflation and interest rates continue to weigh on stocks as well, giving investors even more reasons to do some profit-taking.

It's worth noting that while some downward pressure on stocks after a big run-up is generally healthy, there were good reasons for all three of these stocks' strong gains last year. Zoom's fiscal 2021 (a fiscal year ending on Jan. 31, 2021) revenue soared 326% year over year, and its free cash flow swelled from $114 million to $1.4 billion. Square's 2020 gross profit notably jumped 45% -- and Fastly's rose 52%.

Now what

While the COVID-19 pandemic was largely an accelerant for these companies, all three are expected to continue growing rapidly this year, albeit at slower rates than in 2020.

Investors will soon get some answers on how all three have been doing. Zoom reports its results for its first quarter of fiscal 2022 on June 1, and Fastly and Square report their first-quarter results this week, on May 5 and 6, respectively. All three companies are reporting their financial results after market close on these days. Investors will be able to find their earnings releases on their investor relations websites, where they will also be able to tune into live earnings calls during which management discusses these results.

Investors should think twice about profit-taking on these stocks. It's important to remember that stocks of high-quality companies are generally more attractive at lower prices than they are at higher prices. Though this makes sense intuitively, adopting this mentality over the long haul is more difficult in practice than in theory.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool owns shares of and recommends Fastly, Square, and Zoom Video Communications. The Motley Fool has a disclosure policy.


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