The Meta Platforms (NASDAQ: FB) share price fell off a cliff yesterday. That came as a less-than-encouraging quarterly report alarmed already-battered tech investors. Revenue in Q1 is expected to be somewhere between $27bn and $29bn, rather than the $30bn expected by analysts. The number of active users also declined, a first in the company’s 18-year history. 

Should I be using this weakness as an opportunity to load up on the owner of Facebook, WhatsApp and Instagram? Like the relationship status on some of its users’ home pages, “it’s complicated“.

Meta share price: is the reaction overdone?

In certain respects, I think the reaction is too extreme. A fall from 1.93bn to 1.929bn active users in the last three months of 2021 is nothing to worry about, I feel. But the market reaction suggests Facebook’s growth is history. That strikes me as somewhat ludicrous.

In reality, I expect the company will adapt and overcome, as any good business does. Meta owns a staggering amount of data and information on users that it can then sell to advertisers. It also remains a hugely profitable business.

Like him or not, founder Mark Zuckerberg isn’t going anywhere either. At just 37, this isn’t the first challenging period faced by Meta’s chief and it won’t be the last. For me, the Cambridge Analytica scandal in 2018 was far more concerning. Even the best stocks miss earnings targets now and then.

Reasons to be fearful

This isn’t to say the company doesn’t face substantial challenges going forward. Some or all of these could put further pressure on the Meta share price. 

The popularity of rival apps such as TikTok and Alphabet-owned YouTube will certainly be playing on owners’ minds. The introduction of the App Tracking Transparency Policy by fellow tech titan Apple is another potentially huge headwind. Yes, the so-called metaverse being created by the company could be the solution to both problems. But this will take time to develop and cost billions of dollars in the process. 

And if all of this weren’t enough, there’s the much-discussed rotation into value stocks in 2022. Investors become rattled over the prospect of quicker-than-expected interest rate hikes are leading this. Meta may get back on track in the next quarter. But wider market sentiment could still delay a recovery. The mere whiff of increased regulation won’t help.

I’m a buyer (sort of)

On balance, I’m inclined to think Thursday’s movement in the Meta share price was another example of stock market myopia. A good company doesn’t become a bad one in three months. Being able to look further ahead than a few weeks is one of the few, very powerful, advantages I have over professional investors whose careers are on the line.

I’m perfectly content to increase my exposure to the company via quality-focused funds such as Fundsmith Equity and LF Blue Whale Growth rather than buy the stock directly. This strategy may reduce my gains in the event of Meta making a strong recovery. But it’s much easier than trying to time my entry when growth stocks are being hammered across the board.

The post The Meta share price has crashed. Here’s what I’m doing about the earnings bombshell appeared first on The Twelfth Magpie.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Paul Summers owns shares in Fundsmith Equity and LF Blue Whale Growth. The Motley Fool UK has recommended Alphabet (A shares) and Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The social media giant

Facebook (NASDAQ: FB) has seen its value soar over the past few years, rising 750% from its IPO in 2012. But sentiment has dampened recently, with the stock falling around 16% since the start of September. This has been due to a flurry of bad news including advertising issues and a whistleblower accusing the company of placing profit before people’s safety. This has dampened investor optimism.

There’s also a risk that this will lead to decreased profits when the company reports its Q3 earnings this evening. Indeed, due to privacy changes introduced by Apple recently, which have allowed iPhone users to opt out of apps tracking their web activity and preventing targeted advertising, there’s the risk that some companies will avoid advertising via Facebook. These new privacy moves contributed to the 26% fall by Snap on Friday, as they hit revenues. This also saw the Facebook share price drop 6% on the day.

But while this risk should be considered, I feel that the benefits of this growth stock are too great to ignore. In fact, the company has managed to grow annual revenue by at least 20% each year, and despite the issues posed by the pandemic, there has been no evidence of this growth slowing down. In fact, in the previous quarter, Facebook reported revenue growth of 56% and an increase of 101% in net income.

Companies are also returning to more advertising, after being slightly subdued during the pandemic. Facebook is seen as a major beneficiary of this, and this could help increase profits even more for the future. As such, I’m very tempted to buy this growth stock.

A growth stock to avoid?

Beyond Meat (NASDAQ: BYND) has several positives, especially that it’s operating in a high-growth market, and it has managed to grow revenues from $32m in 2017 to $407m last year. But there are also several factors that deter me from this growth stock.

For example, on Friday, the shares fell by 14% due to the company cutting Q3 revenue guidance to $106m, down from around $130m. This was due to the large number of coronavirus cases, labour shortages and operational challenges. For me, this demonstrates that the company struggles in the face of headwinds, something I don’t like in a growing company.

Further, I worry about the competition that Beyond Meat faces. This includes Impossible Foods, which has been increasing its retail presence through price cuts for shoppers. Unfortunately for Beyond Meat, this has decreased its market share, and may potentially decrease margins as well. These are worries that are keeping me away from this stock.

The post A beaten-down growth stock to buy and one to avoid appeared first on The Twelfth Magpie.

More reading

• Are Meta shares at the start of a comeback?

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Apple, Beyond Meat, Inc., and Facebook. The Motley Fool UK has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.