Investors looking for a large-cap growth stock that can provide steady gains should buy the current dip in social media giant Facebook (NASDAQ:FB) stock.
Shares of the social network fell 5% immediately after the company said in its latest earnings that it expects revenue growth to slow throughout the rest of this year.
FB stock investors seized on the forecast of slower growth. They also seemed to disregard the fact that Facebook’s second-quarter earnings trounced Wall Street estimates.
Nearly a week after the negative outlook was first announced, FB stock fell 4% to $354.80. Astute investors should see the weakness as a buying opportunity and start a position in the stock or add shares to an existing one.
Ad Rebound Backs FB Stock
Disappointing guidance aside, Facebook reported second-quarter earnings that were very strong.
The Menlo Park, California-based company’s revenue came in at $29.08 billion, compared to $27.89 billion expected by analysts. Earnings per share (EPS) amounted to $3.61 compared to $3.03 that had been forecast by analysts.
Facebook’s Q2 revenue grew by 56% year-over-year. This was the fastest rate of growth for the company since 2016.
Advertising on its social media platform propelled Facebook’s strong results. The company reported a 47% rise in the average price per advertisement, along with a 6% increase in the number of advertisements it delivered in the quarter.
Additionally, the company announced that its daily active users around the world totaled 1.91 billion. That figure met analysts expectations. Revenue from Facebook’s “Other” segment, which includes consumer hardware products such as the Oculus virtual reality headset, totaled $497 million in the quarter, up 36% from a year ago.
Broad-Based Slowdown
Facebook’s guidance for the second half of the year, in which it said that it expects “year-over-year total revenue growth rates to decelerate significantly…” rattled markets.
But the company was not the only large cap technology company to forecast slowing growth in coming quarters.
Shares of Apple (NASDAQ:AAPL) fell 3% after the company warned that its sales growth is slowing and supplies are tightening. The company blamed the global semiconductor shortage.
Similarly, enthusiasm for Microsoft’s (NASDAQ:MSFT) latest blowout results was tempered. Microsoft’s report highlighted slowing growth in its Azure cloud computing business.
Slowing growth can be expected after the blistering pace in which technology companies grew during pandemic lockdowns of the past 18 months. And, it is important to emphasize that Facebook’s latest guidance was effectively unchanged from the guidance it provided when announcing its first-quarter results earlier this year.
Unfortunately, analysts, who expect $28.22 billion in Q3 revenue, appear unforgiving.
$1 Trillion Market Cap
The pullback in FB stock comes less than a month after the company scored a major court victory and its share price soared. That event lifted the company’s market capitalization to the $1 trillion mark for the very first time.
FB stock jumped nearly 5% after two antitrust cases brought against it by the U.S. Federal Trade Commission and several states were dismissed.
Three years after Apple became the first U.S. company to reach the $1 trillion market cap milestone, there are now four other U.S. technology companies that have surpassed the $1 trillion level, including Microsoft, Amazon (NASDAQ:AMZN) and Google parent company Alphabet (NASDAQ:GOOGL). (Microsoft reached a $2 trillion market cap earlier this year).
Facebook, founded in 2004, is the youngest company to reach a $1 trillion market capitalization.
Buy FB Stock on the Dip
FB stock has had a great run so far in 2021. Year-to-date, Facebook’s share price has risen more than 30%.
The latest dip prompted by the downbeat forward guidance is the first pullback in FB stock since April. A slowdown from pandemic heights is not unexpected.
But Facebook’s long-term growth trajectory remains intact, especially with demand for digital advertisements roaring back. Facebook is a buy.
On the date of publication, Joel Baglole held long positions in AAPL and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
