NFLX Netflix Inc

By Maureen Farrell, Aaron Kuriloff and Don Clark 

A sharp dive in technology shares underscored investor worries about uneven U.S. economic growth, as the latest lackluster corporate outlook, this time from LinkedIn Corp., fueled a rush out of stocks.

In the most jarring example of investor unease, LinkedIn's shares tumbled 44% on Friday following a disappointing earnings forecast. A weak reading on jobs growth added to the woes, helping to push down the Dow Jones Industrial Average 211.61 points, or 1.3%, to 16204.97.

The tech-oriented Nasdaq Composite Index dropped 3.2% on its way to a 5.4% drop for the week. The tech sector has been an investor favorite in recent years, reflecting the strong growth and popularity of big firms such as Facebook Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc.

But those firms all slumped at least 3% Friday, after LinkedIn and another smaller technology firm, data-analysis software maker Tableau Software Inc., posted softer-than-expected growth projections for 2016.

Tableau's shares plummeted 49%, and other tech companies dropped as well, including a 5.8% decline in Twitter Inc.

Analysts said the scale of the selling highlights the vulnerability of the technology sector at a time when the U.S. economy is expanding in fits and starts, corporate earnings are under pressure, and investors are concerned that global economic problems will spill over to the U.S.

While the prospects of firms such as Facebook and Google aren't directly affected by poor results at smaller tech firms in different fields, all the companies have been trading at high valuations, a factor that makes them vulnerable to selling for essentially any reason. And if any of tech's highflying companies falter, analysts said, other stocks likely will be even more vulnerable.

"It's the realization that the world is slowing," said Michael Antonelli, an equity sales trader at brokerage Robert W. Baird & Co.

He said poor earnings at LinkedIn and Tableau, together with high earnings multiples and fears of slowing U.S. growth, are causing investors to retreat from risk, for fear that earnings growth will decline in coming months.

LinkedIn, an online professional network, late Thursday projected revenue this year would increase roughly 22%, down from 35% in 2015, and far below analysts' expectations.

Chief Executive Officer Jeff Weiner said Thursday that LinkedIn continues to make inroads with large corporate clients. The company added more than 3,000 new corporate accounts in the fourth quarter. Analysts said LinkedIn earned nearly $4,000 a month from each corporate customer in the fourth quarter, roughly flat with the year before.

"There has been increasing demand, in terms of large-scale multinational enterprises. And again, it's going to take time to continue to roll out the product, and ensure that companies are ready to fully embrace social selling. It's a new practice, and we're looking forward to continuing to educate the marketplace on that front," he said.

The concerns were accentuated by comments late Thursday from data-analysis software maker Tableau Software. Tableau said it expects revenue this year of $830 million to $850 million, down from its previous projection of $845 million to $865 million.

"We saw some softness in spending, especially in North America," Tableau CEO Thomas Walker told analysts. "We did see our customers continue to expand their use of Tableau in the organizations, but not at the same cadence we'd historically experienced."

Tableau's comments helped spark an exodus by investors from other business-software makers.

Salesforce Inc., a maker of customer-relationship software with annual revenue exceeding $6 billion, fell 13%. Smaller firms were hit harder: Splunk Inc. fell 23%; New Relic Inc., 22%, Hortonworks Inc., 17%; Workday Inc., 16%; and NetSuite Inc., 14%.

Atlassian Corp., which makes software used to run corporate technology services, made more upbeat comments along with its first quarterly results as a public company on Thursday. Quarterly revenue rose 45% from a year earlier and the company said it added 2,600 customers. But its stock also was pummeled Friday, falling 16%.

Analysts questioned whether Tableau's comments should be considered a sign of trouble ahead for others in the sector.

"We are not seeing across-the-board macro-related weakness in the software sector," said Karl Keirstead, a Deutsche Bank analyst, in a research note. He said greater competition in the company's markets and internal issues with its sales force may be to blame.

Others said they believe the largest tech firms remain solid investments, given their dominance of their respective markets. While stock markets have been declining and volatile this year, they will rebound at some point, and these firms' prospects likely will make them winning investments over time.

"In the short run, there's a valuation question, but it seems to me that strategically, the growth path for these companies isn't over," said David Kotok, chief investment officer at Sarasota, Fla., money manager Cumberland Advisors.

Even after Friday's selling, Amazon traded at a 402 times its earnings over the past 12 months. Netflix traded at 296 times, Facebook traded at 81 times and Alphabet at 31 times. The S&P 500 average is 21.4, according to Birinyi Associates.

But others said the selling pointed to a confluence of concerns about the U.S. economic outlook, with its negative implications for corporate earnings, and high valuations that analysts said have essentially meant investors were assuming that firms would keep expanding faster than they are now expected to do.

According to Bespoke Investment Group, the 50 stocks with the highest price/earnings ratios in the S&P 500 averaged a decline of 3.1% as of midday Friday.

"Investors appear to be much less willing to pay up for growth today than they were yesterday," Bespoke said in a research note. "This looks like a case of "valuations don't matter...until they do."

Deepa Seetharaman contributed to this article.

Write to Maureen Farrell at maureen.farrell@wsj.com, Aaron Kuriloff at aaron.kuriloff@wsj.com and Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

February 05, 2016 19:52 ET (00:52 GMT)

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