As earnings season has approached, growth stocks have continued to struggle. This is due to a set of poor earnings from many of the big players, excluding Microsoft, Apple and Alphabet that continue to impress. On Wednesday, the PayPal (NASDAQ: PYPL) share price sank around 25% due to poor future guidance, dropping further yesterday. Yesterday, Meta (NASDAQ: FB) stock crashed over 25% due to weak earnings and guidance. Do these large crashes create buying opportunities though?
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.
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.
