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Earnings Letdowns for Stock Market Pandemic Winners Are Mounting

Earnings season is revealing cracks in some of this year’s top stocks, a worrying sign for a market that has relied on a smaller pool of big winners to fuel gains.

PayPal Holdings Inc., the payments company that has become a market darling this year, fell as much as 6.9% on Tuesday after reporting slower user growth and a lackluster sales forecast.

While other industries struggle with pandemic-driven changes in consumer behavior this year, many companies whose products and services make it easier to interact and transact remotely have thrived. That’s fueled share price gains and rising investor expectations that the boom times for internet-related companies will continue. PayPal, for example, had gained 82% this year through the end of September as user growth and payment volume surged. The stock’s gains created more than $100 billion in market value.

This reporting season, financial results for several of these companies have come in below expectations, which may weigh on the outlook for the broader market. Firms like Netflix Inc., Shopify Inc., Fastly Inc. and Twilio Inc. reported results that were met with waves of selling.

Technology and internet stocks tumbled last week, extending a recent slide after results from the biggest technology companies failed to live up to expectations. Tech giants like like Apple Inc., Amazon.com Inc. and Facebook Inc. released quarterly results that beat estimates by some measures, but they weren’t viewed as strong enough to justify lofty valuations. That helped send the S&P 500 down 5.6% last week, its worst performance since March.

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To be sure, some of the year’s banner stocks have posted results that commanded even higher prices. Pinterest Inc. and Snap Inc. both soared after user growth and sales smashed expectations as brands shift ad budgets to online platforms during the coronavirus epidemic.

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