PINS Stock Deserves a Serious Look
When it comes to social media stocks, Pinterest Inc (NYSE:PINS) has been living in the shadow of a bigger player, i.e. Facebook, Inc. (NASDAQ:FB). With $39.1 billion of market capitalization, Pinterest is a large-cap stock, but it’s not at the same level as Facebook, which currently commands a market cap of about $900.0 billion.
That said, Pinterest could be an attractive opportunity for tech stock investors for a very simple reason: growth potential.
You see, Pinterest isn’t one of the early entrants in the social media business, launching its web site in 2010. But it was still able to build a sizable presence in the business. One of the reasons is that Pinterest works as a visual discovery engine for finding ideas for recipes, home decor, crafts, and style. By differentiating itself from the other players, the company has found a unique opportunity.
As of March 31, Pinterest had 478 million global monthly active users (MAUs). Note that the amount represented a 30% increase year-over-year. (Source: “Pinterest Announces First Quarter 2021 Results,” Pinterest Inc, April 27, 2021.)
For an established social medial company, a 30% expansion in its user base is quite impressive.
However, market participants didn’t respond that well to the news. On the trading day following the earnings announcement—which revealed the company’s MAU growth—Pinterest stock tumbled by 8.5%.
The reason had to do with expectations. Companies aren’t only compared to themselves, but also to projections from Wall Street. This time, analysts had expected Pinterest’s MAUs to be 480.5 million. So while the company’s number looked solid on its own, it missed Wall Street’s expectation.
And then there’s the easing of COVID-19 restrictions. Like other social media companies, Pinterest Inc has enjoyed strong user engagement during the stay-at-home environment.
But in its latest shareholder letter, the company said, “Starting in mid-March, the easing of pandemic restrictions slowed US MAU growth and lowered engagement year over year as people spent less time online. In Q1, we saw good retention of the MAUs we gained during 2020, but we still don’t know if or how long this retention will last.” (Source: “Q1 2021 Letter to Shareholders,” Pinterest Inc, last accessed May 25, 2021.)
The thing is, while that cautionary statement didn’t impress the stock market, the company expects its growth momentum to continue, especially when it comes to its financials.
In particular, management projects that the company’s second-quarter revenue will grow by approximately 105% year-over-year.
Mind you, Pinterest Inc’s monetizing efforts have already been paying off. In the first quarter of 2021, the company generated $485.0 million of revenue, marking a 78% increase year-over-year. Its average revenue per user was $1.04 for the quarter, up 34% from the $0.77 reported for the year-ago period.
Pinterest’s adjusted earnings came in at $0.11 per share in the first quarter, representing a huge improvement considering that, in the year-ago period, the company had an adjusted net loss of $0.10 per share.
And since Wall Street was forecasting earnings of $0.07 per share on $474.0 million of revenue from Pinterest Inc, the company actually beat both top- and bottom-line expectations in the first quarter.
Last but certainly not least, although the easing of COVID-19 restrictions can lead to uncertainty in user growth and engagement, management expects that Pinterest’s global MAUs will grow in the mid-teens in the second quarter of this year.
Pinterest Inc (NYSE:PINS) Stock Chart
Chart courtesy of StockCharts.com
As you can see in the above chart, Pinterest stock continued to drop for about two weeks after the release of its earnings report, bounced back a little more recently, and is now trading near its 200-day moving average.
Considering that PINS stock is down by more than 30% from its February peak but the company’s business remained solid, this pullback could represent an opportunity for growth investors.