Twitter (NYSE: TWTR) and Snap (NYSE: SNAP) have struggled for years competing with Facebook (NASDAQ: FB) in the social media game. However, investors may now finally have a viable Facebook alternative in Pinterest (NYSE: PINS). Even after a bumpy IPO, Pinterest stock still has added more than 8% since April.
Like Facebook, Pinterest is primarily an advertising company. Like Facebook, Pinterest has plenty of exciting long-term growth opportunities.
But unlike Facebook, PINS stock doesn’t come attached to antitrust risk. Pinterest also doesn’t have significant regulatory concerns and negative press about the harmful effects of its service.
The Pinterest Stock Growth Story
Pinterest has plenty of growth opportunities starting with simply expanding its user base. The company reported 291 million monthly active users in its first quarterly earnings report in May.
That number represented 21.7% growth from a year ago. The good news for investors is that Pinterest’s user base doesn’t seem to be plateauing just yet. That phenomenon has plagued both Twitter and Snap in recent years.
Pinterest also seems to have plenty of room to improve its average revenue per user. Pinterest reported ARPU of 73 cents last quarter, an annual run rate of about $3. There seems to be plenty of opportunities for Pinterest to better monetize its user base given Facebook, Twitter and Snap have annual ARPU’s of around $25, $9 and $6, respectively.
Finally, Pinterest is investing heavily in expanding its Partners program to integrate third-party technology into its platform. According to Nomura Instinet analyst Mark Kelley, the latest group of Pinterest partners have dramatically improved ecommerce functionality on the platform. Users now have the ability to set up stores on Pinterest. Pins for certain products can also connect users directly to retailers for purchases.
More than half of Pinterest users already use the app while they are shopping in brick-and-mortar stores, according to market researcher GfK.
“As the company’s e-commerce efforts scale (Catalogs and Shopping Ads were outlined on the 1Q19 call), we think transactional capabilities could be a notable source of upside for the company’s financials,” Kelley says.
Pinterest Stock Doesn’t Have Baggage
In addition to the growth opportunities, PINS stock may have a key advantage over FB stock when it comes to investor sentiment and risk. There’s no question Facebook’s advertising business has been firing on all cylinders for years. However, there has been increasing uncertainty among investors about what the company’s long-term future holds.
First, Facebook, Amazon (NASDAQ: AMZN), Apple (NASDAQ: AAPL) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) recently has been the subject of a wave of antitrust rhetoric. For example, Democratic presidential candidate Elizabeth Warren has called for these tech companies to be broken up due to their size. Alternatively, regulators may force Facebook to change its business at some point to promote competition.
At the same time, Facebook is facing scrutiny because of its size, it’s also facing scrutiny because of its business. The Cambridge Analytica scandal and the abuse of social media platforms by foreign powers have investors worried about costly new regulations restricting data usage, content and access on Facebook’s platform.
Finally, another recent study has linked use of Facebook to depression. This study is simply adding fuel to the fire of groups calling for users to delete Facebook, Instagram, Snapchat and other popular social media accounts for their own good.
Regardless of whether or not users leave the platforms, advertisers are well aware of the negative perceptions. The negative impact of Twitter and Facebook use have particularly captured the media’s attention. Pinterest has a much better reputation as a positive platform. Advertisers certainly want their products associated with this type of positivity rather than a platform that has been linked to depression, suicide and ethnic cleansing.
Pinterest Stock Has Its Own Risks
Pinterest stock may look like a much safer investment than FB stock when it comes to headline risk. Unfortunately, when it comes to financials, Pinterest is not a safe bet.
PINS stock currently trades at a staggeringly high 17.5 price-to-sales ratio. Like other high-profile 2019 IPOs such as Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT), Pinterest is not yet profitable. In addition, these tech IPOs have a horrendous track record in their first year of trading, suggesting upside for PINS stock may be limited in the near-term.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
