Investors are fearing that Kornit Digital (NASDAQ:KRNT) stock may be the canary in the coal mine for the e-commerce sector. Today, management of the industrial inkjet printer specialist disclosed bad news for the second quarter. With an updated forecast for the quarter around 30% below its previous targets, Wall Street is now taking a dim view on KRNT stock. Shares are down more than 25% so far today.
Kornit executives now believe Q2 revenue could range between $56.4 million to $59.4 million. That’s a significant departure from the prior-estimated range of $85 million to $95 million. Kornit bills itself as “the operating system for fashion,” with customers using its inkjet printers to create clothing on demand.
If this new range news wasn’t bad enough, Kornit also says Q3 might not fare much better. The company predicts that Q3 sales will be “at or above second-quarter revenues.” According to MarketWatch, analysts had expected Q3 sales to top $100 million prior to the negative disclosure, a potential record for the company.
What’s really driving pessimism for KRNT stock, however, is the company’s ties to Amazon (NASDAQ:AMZN). The e-commerce giant accounted for 27% of the company’s revenue in 2021. So, a slowdown for Kornit implies brewing troubles for e-commerce as a whole.
KRNT Stock as a Sector Barometer
Although the pain impacting KRNT stock is severe, it’s also not entirely unexpected. Online sales have picked up dramatically since the beginning of the pandemic. However, as a percentage of total retail sales, e-commerce is capturing a smaller share of the broader retail pie.
In fact, data from the U.S. Census Bureau shows that e-commerce relative to all retail sales peaked in Q2 2020 at 16.4%. As of Q1 2022, this metric has declined to 14.3%. Obviously, the current economic backdrop poses severe concerns for investments tethered to e-commerce, including KRNT stock.
What’s behind the decline? For one, the rising inflation rate has substantially eroded the purchasing power of the U.S. dollar. Between January 2020 through May 2022, purchasing power has declined nearly 12%. Therefore, consumers are not in a mood to open their wallets on a whim, meaning the competition for discretionary spending dollars is fierce.
Second, households are actively mitigating the sharp rise of prices by cutting the cord — this time on cordless services, ironically. That cutting may have an impact on platforms that, in exchange for a monthly subscription, offer benefits like free shipping. At scale, this development doesn’t just affect KRNT stock — it affects any e-commerce-heavy business.
The ‘New Normal’ Bites Hard
Another factor to consider here are the unique dynamics of the “new normal.” With millions of workers still remote, the cost-savings involved in not commuting to the office can be partially transferred to brick-and-mortar retailers. Rather than paying shipping fees, consumers can simply go to physical stores and purchase what they want.
All told, until inflation eases and employers recall most of their workers back to the office, the broader e-commerce sector may face challenges. Just ask anyone holding KRNT stock.
On the date of publication, Josh Enomoto did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.