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Here's Why Capital One Stock Is Plunging Today

Matthew Frankel, CFP, The Motley Fool

What happened

Capital One Financial (NYSE: COF), the regional bank best known for its credit card business, reported its fourth-quarter earnings on Wednesday, and investors aren't happy. As of 11:20 a.m. EST, the stock is down by nearly 7% -- a massive one-day drop for a bank.

So what

Capital One missed expectations on the top line. Revenue of $7.01 billion came in about $70 million shy of estimates, and while earnings of $2.48 per share exceeded analysts' predictions, there were some other items that may be concerning investors.

Two young women paying for purchases with a credit card.

Image source: Getty Images.

Domestic credit card loans increased by 8%, but marketing expenses jumped by a staggering 65%. Competition has never been higher in the credit card industry, so companies are having to pay more and offer higher incentives in order to win new customers.

Furthermore, Capital One has agreed to buy roughly $9 billion in Walmart credit card balances from Synchrony Financial, a move that could be seen as adding significant risk, as these accounts have high credit losses already. Plus, while Capital One is taking over as Walmart's co-branding partner, it was just revealed that Sam's Club will remain a Synchrony partner. This could also be weighing on the stock.

Now what

After the results were reported, Capital One got hit by a wave of analyst downgrades and lowered price targets, which is undoubtedly making the decline even worse that it otherwise would have been. As an institution that is heavily reliant on the credit card business, Capital One is a bit more sensitive than most to economic slowdowns, and a revenue miss during the booming times isn't what investors wanted to see.

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Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.