I must admit that I don’t understand Pinterest (NYSE:PINS). Although it’s one of the most popular social media platforms, I’ve never latched on to the concept of sharing images and videos on a digital bulletin board. That said, don’t let my lack of understanding alone dissuade you. Against its initial public offering price, PINS stock is up over 86%.
Not only that, the IPO for Pinterest stock occurred near mid-April of this year. Thus, we’re just a little over four months and yet shares have nearly doubled in value. More remarkably, in the month so far, the PINS stock price has gained over 25%.
Of all the choices for recession-resistant stocks, a social media firm wasn’t on my radar.
Just take a look at the competition. Shares of industry leader Facebook (NASDAQ:FB) have been volatile since the middle of July. After a strong showing for its most recent earnings report, Snap (NYSE:SNAP) has lost momentum this month. And Twitter (NYSE:TWTR) has shown promise, but so far, it too has incurred a choppy ride in August.
But it’s not just the upwardly rising PINS stock price that has attracted investors. Fundamentally, Pinterest has delivered the goods. For instance, in its second quarter of 2019 earnings report, the company beat expectations by mitigating per-share profitability losses and ringing up millions more than expected for top-line sales. Unsurprisingly, Pinterest stock jumped on the news.
Most impressively, monthly active users (MAUs) went up 30% against the year-ago quarter to 300 million. It’s clear that Pinterest resonates with fans worldwide, but is that enough to justify the PINS stock price now?
PINS Stock Has a Critical Demographic Problem
Momentum is a very powerful thing. And obviously, it’s doing wonders for Pinterest stock. At a time when most investments are under a cloud of doubt, PINS is killing it.
Still, I’m hesitant on engaging Pinterest stock because of the underlying platform’s demographic problem. Back four years ago, the Pew Research Center collected demographic information for popular social media platforms. Some of the findings were obvious, such as that Instagram skews very young.
However, what startled me — because again, I don’t understand Pinterest — was that PINS skewed heavily female. And I’m not talking about a garden-variety heavy bias — I’m talking about a spread difference of 175%.
Such a demographic slant is unsightly compared to other platforms. For instance, Facebook has a female-to-male users spread of less than 17%. Instagram was higher (29%), but still much more reasonable than Pinterest. Twitter was an anomaly, skewing conspicuously higher for male users than for female. Nevertheless, the spread here was again within reason.
Of course, when you drill down the Q2 numbers, nothing seems amiss. Not only is the company ringing up more sales, each user is contributing more to the top line. Given this positive trend, PINS stock may benefit from consistent profitability.
But moving forward, I think this demographic allocation represents a liability. Recent data on Pinterest users still shows that the platform skews heavily female. Actually, this condition may have “worsened,” for lack of a better term.
I think that’s a huge dilemma because advertisers want to get more bang for their buck, especially in a recession. Knowing that they’ll basically reach only a female audience with Pinterest, advertisers may turn elsewhere. And that might not bode well for Pinterest stock.
Pinterest Has Everything Else Right
Having shared my reservations for PINS stock, I can still understand why investors have pushed shares up. Essentially, in other demographic categories, this equity is a winner.
For instance, Pinterest features generally even usage among different races or ethnicities. In some other platforms, the racial distribution is unbalanced. That’s neither a good nor bad thing; however, such distribution makes the platform less appealing for advertisers due to limited reach.
Moreover, Pinterest attracts almost an equal share of the young (ages 18 to 29) and the “young-ish” (ages 30 to 49). Over the long run, that should benefit the company’s revenue streams as its users grow with it. Plus, this demographic range represents an average person’s core earning years. This would most certainly appeal to advertisers, thus raising the profile of Pinterest stock.
Ultimately, though, I’m just going to go with my gut instincts: I’m not feeling PINS stock. And it’s not just about the female demographic slant. Instead, it’s the combination. With social media investments currently not doing so well, along with recession fears, I’m going to sit this one out.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
