Pinterest (PINS) is a global social media company that enables users to share and save images, GIFs and videos.
The main value for Pinterest stems from its sizable network of users generating a large amount of content. This then stimulates a virtuous cycle in which more users are prompted to join, spend time on, and contribute additional content to Pinterest’s platform, over its competitors. This creates more fertile ground for advertisers, from where Pinterest obtains its revenue. (See Pinterest stock charts on TipRanks)
Pinterest’s latest results illustrate just how rapidly it is growing, as revenue grew by a whopping 125% year-over-year in Q2 2021, led by an exceptionally robust 227% year-over-year international growth. Additionally, its network continued to grow stronger during Q2 as monthly average users increased by 9% year-over-year, combining with increased monetization per user of 89% year-over-year to generate its strong top-line growth numbers.
Valuation Metrics
Pinterest’s valuation is fairly reasonable, given its strong growth and competitively advantaged network. The price to normalized forward earnings is 52x, which seems high, until you remember the aforementioned revenue spike in Pinterest’s most recent quarter. Furthermore, revenue is expected to continue to grow by 54.3% overall in 2021 and 32.3% in 2022. Meanwhile, normalized earnings-per-share are expected to grow by 150.1% in 2021 and 31.4% in 2022.
As a result, shares are only trading at 42x 2022 expected earnings, with significant growth likely to continue as the network continues to grow internationally, and revenue per customer also surging. Given that the broader stock market trades at elevated valuations and that Pinterest is generating significantly above-average growth, this valuation looks quite attractive on relative terms.
Wall Street’s Take
From Wall Street analysts, Pinterest earns a Moderate Buy consensus rating based on seven Buy ratings, 10 Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Pinterest price target of $72.13 puts the upside potential at 20%.
Summary and Conclusions
Pinterest has a lot going for it, thanks to the strong international growth it is experiencing. Also, it is experiencing improved monetization per user, as the company grows increasingly adept at monetizing its platform.
Pinterest currently has 475 million average monthly users, and its platform’s focus on visual inspiration and discovery naturally lends itself towards effective advertising. As a result, we expect the company to benefit from strong advertiser demand for its platform, thereby enabling management to charge premium pricing for advertising space.
That said, despite general Wall Street bullishness on the stock at current prices and the reasonable-looking price to earnings ratio, investors should keep in mind that the current valuation does require significant growth in the foreseeable future to be justified. That makes the stock somewhat speculative.
Disclosure: On the date of publication, Samuel Smith had no position in any of the companies discussed in this article.
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.
