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Stock Analysis & Ideas

PINS: What’s So Special About this Social Media Company?

Similarly to other growth stocks, shares of Pinterest, Inc. (PINS) suffered extreme volatility throughout 2021. The company, which went public in April 2019, opened trading at a share price of $19 and reached an all-time high of $86 by February 2021. Since then, PINS stock has fallen by approximately 70%. Over the past few months in particular, Pinterest has been under intense pressure, impacted from both macro and company-specific headwinds.

Regarding the former, surging inflation coupled with rising interest rates does not bode well for more risk-on assets. For high-growth, soon-to-be-profitable tech stocks, this is a poor setup. Investors prefer low interest rate environments, as it makes their discounted cash flow models spit out better valuations.

The recent Russian war on Ukraine has brought about an additional layer of uncertainty for investors. Additionally, slowing user growth across social media platforms, as well as increased competition for user attention have all contributed to Pinterest’s declining valuation.

However, there are business-specific reasons for Pinterest’s deceleration as well. Lower monthly active user (MAU) numbers have further hurt sentiment around Pinterest’s ability to grow.

That said, I remain bullish on this stock. Let’s dive into why investors may want to consider Pinterest, relative to other social media names.

Attractive Earnings, Profitability, and Robust Growth Plan

As a popular social media platform, Pinterest is a company that’s garnered an impressive valuation. At the time of writing, the company is valued at around $15.91 billion. This puts the company’s price-to-earnings ratio at a multiple of around 52.57. For most stocks, and even tech stocks, that’s expensive right now.

However, there’s a reason for this valuation. The company’s recent revenue and earnings have shown great improvement over time. While the firm’s growth may not have materialized as many investors had hoped in recent quarters, it’s worth noting that the company’s revenue reached $2.6 billion last year, from just $756 million in 2018. That’s a four-fold increase in the span of four years, not too shabby.

Over time, I expect this trend to continue. That’s because Pinterest’s platform is not yet monetized to its maximum potential. This platform has a unique range of opportunities for raising revenues that other platforms don’t. With high rates of utilization among its existing MAUs, there’s certainly the potential for this company to grow its bottom line much faster than its top line. For long-term, conservative, fundamentals-oriented investors, that’s a great quality.

It is important to note that, despite top line and user disappointments, Pinterest did beat Wall Street’s expectations for earnings this past quarter. The company pumped out $0.49 per share in profits relative to expectations of only $0.45. That’s a 10% beat, at a time when more investors should be focused on the bottom line than the top line anyway.

Additionally, this social media giant addressed its goal to improve user engagement. Pinterest plans to do so by including short-form videos, which would boost the shopping experiencing for consumers. This, in addition to the potential for other business lines such as augmented reality, provides a nice growth thesis for long-term investors.

The Road Ahead

Over the years, Pinterest has taken aggressive measures to modify its content and attract more users. In October 2021, PINS launched Pinterest TV, which allowed users to view and shop across different live categories such as beauty, food, DIY, and home. 

Moreover, in the latter half of 2021, Pinterest acquired Vochi, a video editing and creation app, another indication of investment toward diversifying its offering. In addition to this pivot, the company introduced Try On for Home Decor, which is an AR-based shopping experience. All of these moves are anticipated to increase user engagement on the app.

Nonetheless, despite these impressive strategies, Pinterest’s MAUs have been declining. Pinterest’s user base soared to 478 million during Q1 of 2021. Since then, it has fallen steadily. One of the primary reasons behind this is the emergence of other social media apps like TikTok. 

However, for long-term investors bullish on Pinterest’s ability to monetize its user base, this is a company with some impressive potential right now.

What Are Analysts Saying About PINS Stock?

As per TipRanks’ analyst rating consensus, Pinterest is a Moderate Buy. Out of 24 analyst ratings, there are 7 Buy and 17 Hold recommendations. The average Pinterest price target is $39.64, and currently represents a possible 12-month upside of 63.94%. Analyst price targets range from a high of $50 per share to a low of $31 per share.

The Bottom Line

Along with overall growth and tech, social media stocks’ near-term recovery remains uncertain. However, for those who believe the bulls will run again, this may be an excellent time to consider shares of Pinterest.

There’s reason to believe this company can begin to pull its profitability levers at any time, and once it does so, all bets are off in terms of how quickly this company can mint cash and deliver it to shareholders over the long-term.

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