The world is at the tail-end of the pandemic, yet many growth stocks have seen valuations and share prices drop. The S&P 500 is down around 19% this year-to-date. When markets fall so sharply, buying opportunities reveal themselves. Is Pinterest (PINS) one such company? It has lost over 37% year-to-date. Due to the firm’s global reach and sticky platform, I am bullish on the stock in the long-term.
Why Pinterest Could be Worth Keeping an Eye on
The company reported its numbers for Q1 2022. Revenue was up 18% year-over-year to $575 million. However, global monthly active users or MAUs declined 9% to 433 million, when compared to Q1 2021. If you break down the numbers, U.S. and Canada MAUs dropped 13%, Europe dropped 12% and the rest of the world declined 6%. This was a major factor that the stock price has stalled since its earnings announcement. After this news, investors have not been convinced that the stock will move up.
The other challenge for the company is to increase its ARPU (average revenue per user). Its global ARPU is $1.33 but ARPU for U.S. and Canada customers is $4.98, Europe is $0.72, and the rest of the world is a measly $0.08. It doesn’t help that North American MAUs dropped the most. Even a two-fold increase in rest of the world ARPU can’t help it catch up to U.S. and Canada ARPUs.
To be fair, ARPU for Europe has increased 40% year-over-year, from $0.51 in Q1 2021 to $0.72. ARPU for rest of the world has increased 164% over the same period, from $0.03 to $0.08. U.S. and Canada ARPU has gone up 31% from $3.79 to $4.98.
The company estimates that its Q2 revenue will grow around 11% year-over-year. It expects a 35-40% increase in its operating expenses compared to Q2 2021. Pinterest says it will ramp up investments in its “native content ecosystem, core Pinner experience, shopping, and headcount across research and development and sales and marketing.”
While Pinterest’s confidence in its future has led it to make a bold statement on investments, there are still a lot of investors who are cautious about the shrinkage in the user base. When Netflix (NFLX) announced that it had lost 200,000 subscribers in Q1 2022 and would continue to lose more in Q2, its stock dropped over 35%, causing roughly $40 billion to be erased from its market value. Year-to-date, Netflix has lost almost 68%. If you believe that the fall in MAUs is a serious issue that should be addressed, you would do well to avoid the stock.
During Pinterest’s post-earnings conference call, CEO and co-founder, Ben Silbermann, said, “Despite a challenging macroeconomic and geopolitical environment, we grew revenue 18% year-over-year.”
On TipRanks, seven out of 15 analysts have given Pinterest a Buy rating, while eight of them have suggested a Hold on its shares. The average analyst price target is $29.74 which is a decent 45.43% upside on the stock.
While Pinterest has managed to continue growing its revenues, the pandemic-bolstered tech stock is in a rough category, as its investors have been quick to sell-off its shares in the current economic environment. The company will have to prove itself worthy of sticking around if it is to return to its lofty valuation.
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