In February 2021, Pinterest (PINS) stock reached its all-time high of $89.90. The stock has dropped 37.6% since then, with its latest tumble coming after posting disappointing second-quarter results on July 29.
For Q2 2021, Pinterest reported a monthly active users total of 454 million. In the previous quarter, monthly active users were 478 million. The company believes that as COVID-19 lockdowns eased, people spent less time at home, and thus used Pinterest less often.
The dip in users is a concern. However, there are several positive factors that make the stock attractive at current levels. It seems very likely that PINS stock will rally after some consolidation. (See PINS stock charts on TipRanks)
Positive Growth Factors
Pinterest reported $613 million in revenue for Q2 2021, a 125% increase on a year-on-year basis. Even with a decline in active users, revenue grew 26.4% higher on a sequential basis.
Average revenue per user (ARPU) was the key. For Q2 2021, Global ARPU was $1.32, compared to $0.70 for Q2 2020. For the same period, the ARPU in the United States was $5.08, while International ARPU was $0.36.
It’s clear that the U.S. is the revenue and EBITDA growth driver for the company. However, as global reach and engagement increases, it’s very likely that international ARPU will continue to trend higher. This factor will boost EBITDA margin and cash flows in the long-term.
An important point to note is that for Q2 2021, the company reported selling and marketing expenses of $164 million. This was the highest total of the past five quarters. Increased marketing efforts can possibly yield results in the coming quarters, in terms of user growth.
Pinterest has also focused on making the platform more shoppable. Catalogue uploads on the company’s platform increased by 50% on a quarter-over-quarter basis. With the company providing Shopify integration to international merchants, this momentum is likely to sustain. As it gets easier to shop on Pinterest, the company will become more than just a visual discovery engine.
The company’s revenue growth for Q2 2021 was also driven by strong advertiser demand. Thanks to increased adoption of online selling after the pandemic, along with global growth acceleration, advertising revenue is likely to remain robust.
From a financial perspective, the following two points are important to note.
First, Pinterest reported cash, cash equivalents, and marketable securities of $2.14 billion as of June 2021. A strong cash buffer provides headroom for aggressive investment in innovation and user acquisition.
Furthermore, for the first half of 2021, Pinterest reported operating cash flow of $375 million. This figure was $21 million for the first half of 2020. As cash flows accelerate, there will be higher flexibility to invest in growth.
Wall Street’s Take
According to TipRanks’ analyst consensus rating, PINS stock comes in as a Moderate Buy, with six Buy and nine Hold ratings assigned in the last three months.
The average Pinterest price target is $71.86 per share, implying 28.1% upside potential from current levels.
Concluding Views
Pinterest is transforming itself and becoming a proxy e-commerce platform. With its global reach, there is immense potential. The company also has visibility for EBITDA and cash-flow upside.
The correction, therefore, seems like a good accumulation opportunity. Even if user growth remains relatively subdued, growth in revenue per user is likely to boost margins and cash flows.
Disclosure: Faisal Humayun does not have a position in Pinterest stock.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
