As a relatively young industry, social media has enjoyed enormous growth over the past decade. And thanks to that growth, investors in many social media companies have made some serious profits.
In the U.S., the two most well-known social media companies are Facebook, Inc. (NASDAQ:FB) (which also owns “Instagram”) and Twitter Inc (NYSE:TWTR). These two also happen to be the earliest pure-play social media stocks to come on the market. Facebook completed its initial public offering (IPO) in May 2012, and Twitter completed its IPO in November 2013.
While I like these two stocks—particularly FB stock—there’s another social media stock that might represent a more interesting opportunity at the moment: Pinterest Inc (NYSE:PINS).
Launched in 2010, Pinterest is not the earliest entrant to the social media business. But the company did manage to attract a large user base very quickly. That’s because the platform works as a visual discovery engine for finding ideas for recipes, home decor, crafts, and style. By December 2011, Pinterest’s web site was getting 11 million visits per week. (Source: “Pinterest: Crazy Growth Lands it as Top 10 Social Site,” CNET, December 22, 2011.)
Fast-forward nearly a decade and the platform has grown tremendously. It now boasts a whopping 459 million monthly active users (MAUs). (Source: “Q420 Earnings Report,” Pinterest Inc, last accessed February 16, 2021.)
Pinterest completed its IPO in April 2019 at a price of $19.00 per share.
However, as we can see from the below chart, it has not always been sunshine and rainbows for PINS stock. After the initial surge after the IPO, the stock trended down toward the end of 2019. And just as it started to bounce back in early 2020, the market had a huge sell-off due to the COVID-19 pandemic. which sent Pinterest stock falling well below its IPO price.
But PINS stock didn’t stay down very long. As a matter of fact, after going through the pandemic-induced tumble, Pinterest stock quickly bounced back and actually went on to have a huge rally. At the time of this writing, Pinterest Inc trades at $84.04 per share, marking a 251% increase year-over-year.
Pinterest Inc (NYSE:PINS) Stock Chart
Chart courtesy of StockCharts.com
The surging price of PINS stock was backed by a growing business. According to Pinterest’s latest earnings report, the company generated $706.0 million of revenue in the fourth quarter of 2020. That represented a whopping 76% increase year-over-year. (Source: “Pinterest Announces Fourth Quarter and Full Year 2020 Results,” Pinterest Inc, February 4, 2021.)
The company’s adjusted earnings came in at $0.43 per share for the quarter, which more than tripled the $0.12 per share it earned in the year-ago period.
Given the massive rise in Pinterest stock up to that point (the earnings report was released on February 4), Wall Street already had high expectations for the company. On average, analysts were projecting earnings of $0.32 per share on $645.6 million of revenue.
But as we just saw, Pinterest Inc’s actual results absolutely smashed those expectations.
The reality is, even though Pinterest isn’t the biggest social media platform, its user base has been expanding rapidly. Remember earlier I said the company has 459 million MAUs? Well, that number represented a 37% increase from a year earlier.
Better yet, Pinterest has substantially improved its monetization. In the fourth quarter of 2020, the platform’s average revenue per user was $1.57, up 29% year-over-year.
Here’s the most interesting part: Pinterest Inc could be an acquisition target for big tech.
Financial Times recently reported that Microsoft Corporation (NASDAQ:MSFT) tried to acquire Pinterest. (Source: “Microsoft Approached Pinterest About a Takeover,” Financial Times, February 11, 2021.)
That news sent PINS stock up five percent.
Sources said the negotiations aren’t active at the moment. However, it would not be the first time Microsoft eyed the social media industry. The tech giant acquired LinkedIn for $26.0 billion in 2016. Last year, Microsoft tried to buy the U.S. operations of TikTok—although that bid was not successful.
With Pinterest Inc valued at more than $50.0 billion, if the acquisition goes through, it could be the biggest deal in Microsoft’s acquisition history.
Ultimately, there’s no guarantee that an acquisition of Pinterest Inc is imminent. Again, the sources said the talks were currently not active. But this new piece of information does bring up a good point: when a social media platform has an active user base in the hundreds of millions, it has the potential to create plenty of synergy by combining with other players in the tech world.
Bottom line: on its own, Pinterest stock is a fast-growing tech stock. But when you take into account the possibility of the company being an acquisition target, the outlook for PINS stock is even brighter.