PayPal: a growth stock with slowing growth!

As a PayPal shareholder, I was very disappointed in the company’s full-year trading update. This was due to the company’s extremely weak forward guidance. In fact, due to issues of inflation, supply chain pressures and weakening e-commerce figures, expected growth for 2022 was far lower than expected. In fact, revenue is ‘only’ expected to increase around 16%, compared to previous forecasts of 18%. It also only expects adjusted EPS of $4.60-$4.75, and that’s far lower than analyst expectations of $5.26. It also represents no real profit growth from this year.

Clearly, these are all big worries, and PayPal has already abandoned its medium-term goal of reaching 750m users after finding that many of the new customers it had added had not actively been using the service.

But while short-term volatility looks set to continue, I still believe that PayPal is a good long-term option. Indeed, its recent partnership announcement between its subsidiary Venmo and Amazon, will hopefully have a positive effect. Further, many of the current issues seem short term. Therefore, I’m tempted to add a few more shares at current levels, especially as the price-to-earnings ratio has now dropped to below 30. For a growth stock, this seems incredibly cheap.

Meta is also suffering

Meta was the big faller yesterday, after its Q4 trading update severely underwhelmed investors. This was partly due to the rise of TikTok over the past couple of years, which had seen customers move away from Meta’s platforms such as Facebook and Instagram. Indeed, daily active users actually dropped from 1.93bn in the previous quarter to 1.929bn during the fourth quarter. While this drop is not huge, any drop at all is very negative for a growth stock. Disappointing forward guidance, with Q1 revenues expected to increase around 7% year-on-year, also caused the fall of over 20% yesterday.

But there are also arguments that this crash may offer a great time to buy. Indeed, the stock now only trades at a price-to-earnings ratio of 18, which is a historically very low level. Further, Meta will hopefully play a very large role in the metaverse in the future, which may aid growth. As such, although I’m going to avoid the stock right now, due to the volatility and ongoing sell-off that we’re likely to see, it’s certainly on my watchlist. If it dips too low, I may add some of the shares to my portfolio.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Stuart Blair owns shares in Apple and PayPal Holdings. The Motley Fool UK has recommended Alphabet (A shares), Amazon, Apple, Microsoft, and PayPal Holdings. 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 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.

More reading

• Are Meta shares at the start of a comeback?

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.