(Reuters) - Facebook Inc's shares fell as much as 5 percent on Thursday, after the company's weak advertising sales growth outlook dampened investor expectations boosted by Google Inc's strong report earlier this month.
Facebook's shares rallied 7 percent since the search giant reported a better-than-expected profit on July 16, and said it would take a disciplined approach to spending.
In contrast, Facebook said it plans to keep spending heavily on its messaging services, Instagram and its virtual reality headset business. Costs soared 82 percent in the second quarter.
"The number one reason (for the share price fall) is that ... some investors looking at these results are deciding to take their profits," FBN Securities analyst Shebly Seyrafi said.
The stock is expensive compared with that of its peers, according to Thomson Reuters data. It trades at 40.4 times forward earnings, well above the sector median of 25.6 and Google Inc's multiple of 20.9.
However, Wall Street analysts think the stock has more room to grow and expect Facebook's strong investments to boost long-term growth.
Of the 50 brokerages covering the stock, at least 24 raised their price targets. Piper Jaffray was the most bullish with a $146 target - 50 percent over Facebook's Wednesday close of $96.99.
Wall Street is overwhelmingly bullish on Facebook - only one analyst a "sell" rating on the stock.
"While newer initiatives may have a less pronounced impact on near-term revenue growth, we believe management's focus on optimizing the user experience will bear significantly more financial fruit long term," Baird analysts wrote in a note, raising its price target to $110 from $96.
Facebook's monthly active users hit 1.49 billion globally as of June 30, up 13 percent from a year earlier. Second-quarter revenue jumped 39 percent to $4.04 billion, but beat estimates by just 1 percent.
"I think that the underlying expectation was that revenue could be a bit stronger than that, especially given that we have seen quite a lot of strength at Google and even Twitter's ad revenue was better than anticipated," Atlantic Equities analyst James Cordwell said.
Facebook shares pared some of their losses to trade down 2.5 percent at $94.55 by afternoon.
(Story corrects date to July 16 from June 16 in paragraph 2)
(Reporting by Tenzin Pema and Abhirup Roy in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)