Last summer, the shares of social media company Pinterest (PINS) were trading at close to $80. Since then, nothing has seemed to go right. The user growth has come under pressure and PayPal (PYPL) walked away from a potential acquisition of the company for about $40 billion, according to the Wall Street Journal.
As of now, Pinterest is trading at $32. This is actually not far off its IPO price set in 2020, which was $19.
Despite all the drama, I’m bullish on Pinterest. Let’s see why.
The third quarter report from Pinterest was actually encouraging and the company’s stock spiked on the news. It reported a 43% jump in revenues to $633 million and net income came to $94 million. The adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $201 million.
There was something that was not particularly positive: the user growth. On a year-over-year basis, there was an increase of only 1% to 444 million MAUs (Monthly Active Users). Even worse, there was a loss of 24 million users during the past two quarters.
Now this should not have been a surprise. The impact of stay-at-home activities has receded and this has meant less time on platforms like Pinterest.
On the earnings call, CEO Benjamin Silbermann noted that he did not believe the user behavior was permanent. Instead, he said the MAUs will return to normal seasonal levels. However, he did not provide a time table for this.
The Positives for Pinterest
The fact is that Pinterest offers many options for outside activities, whether for homes, vacation destinations, restaurants, fashion and so on. The company has also been aggressive in rolling out new features to improve user engagement.
For example, there are Slide Show Collections. This makes it easy for merchants to highlight their products in full video. Then there is product tagging and affiliate links for Idea Pins. This helps to improve the shopping for brands. In fact, the features have led to 100%+ increases in product searches.
Next, Pinterest has introduced functions to encourage more activity from its creators. There are Takes, which allows for Idea Pins and ways to get others to try them. Then there is a rewards programs to pay its creators.
Perhaps the most important new improvement is seamless checkout. This should lead to much higher monetization levels. If anything, this can turn Pinterest into a strong platform for ecommerce. This will also help alleviate the problems with Apple’s (APPL) new privacy requirements for tracking user behavior for mobile apps.
Wall Street’s Take
According to Wall Street analysts, Pinterest earns a Moderate Buy analyst consensus based on six Buy ratings, 14 Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Pinterest price target of $51.74 puts the upside potential at 62.7%.
A big problem with social media platforms is the hateful content. It can certainly make it challenging for advertisers. This is really not an issue with Pinterest. The site is mostly positive and a great source of inspiration.
What’s more, there should be a return to user growth as the new features start to take hold. There are also aggressive moves to expand Pinterest into foreign markets.
True, given the uncertainty in the markets, its not clear if the stock price is at a bottom. For investors looking at a long-term play on social media and ecommerce, Pinterest stock does look interesting.
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