Pinterest (NYSE:PINS) stock was down to $19.67 on Nov. 19. This is putting the PINS stock price within striking distance of the $19 price per share from its initial public offering (IPO). PINS stock has suffered a steep decline since it released its last earnings report on Oct. 31.
The company issued an earnings surprise of 1 cent per share in earnings which exceeded analysts’ expectations for a 15 cent per share loss in the quarter. Revenue was a different story. The stock was still up over 47% on a year-over-year basis but was lower than analysts’ expectations.
InvestorPlace contributor Luke Lango made a case that the selloff was overdone. And Will Ashworth also made the buy case as PINS stock price approaches $19. Both writers make a bullish case for why Pinterest stock may very well be undervalued. And reading their arguments, I don’t disagree. But that still doesn’t sell me on the stock.
Pinterest Is a Window Shoppers’ Dream
This is not meant to be sarcastic or derogatory. In fact, I admire it. Much of social media is about writing, describing and explaining your story. But not Pinterest. This is a purely visual medium. In fact, they describe themselves as a “visual search engine.” Best practices even suggest business users limit their use of hashtags on their “pins,” which is Pinterest’s description of tweets or posts.
I think this is one of the reasons it’s a well-liked medium. We live in a visual society. And Pinterest is a focused, easy-to-use site that doesn’t require us to respond, just to react.
And better still, in a social media space where Facebook (NASDAQ:FB) is trying to look more like Instagram which is trying to look more like…well…Pinterest, PINS is just doing what it does. And they do it well.
In a way they’re more like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google than like Facebook or Instagram. And like Google, Pinterest relies on ad revenues to make money. The thing is, it’s working. The company is not yet profitable on a full-year basis, but they did eke out an earnings beat in the last quarter. And the fourth quarter is typically Pinterest’s most active quarter, so I would expect that revenue will increase as the monthly active user base goes up.
I understand how Pinterest makes money. I just wonder how much money there is to be made without changing the fundamental character of what makes the site so loved.
Ultimately, Pinterest Is an Idea
Pinterest has a large and growing base of users. And it has a distinct brand identity from other social media sites. Around 90% of users say they associate the brand with positivity (if that can be measured). But finding ideas and turning those ideas into purchases are two different things.
Which is where my questions arise. At its core, Pinterest is a whole site built around ideas, none of which the business actually owns. Which means those ideas could, in theory, go elsewhere. Or they could make the company a tempting acquisition.
I don’t know if I would call that a moat.
In an effort to be completely transparent, I would not fall into Pinterest’s target audience. Not because their audience is over 70% female (although that would be an obvious reason). But it’s more that I can easily get social media fatigue. For me, Pinterest doesn’t make the cut. Which I suppose as someone who likes to write, makes sense.
Pinterest is a beloved brand. And that can take it a long way. But there was no Pinterest before Pinterest. And now that there’s a Pinterest, I expect that there will be others trying to climb into the space. Is there anything to stop one from doing so?
Imitation is the sincerest form of flattery, but it could be the kiss of death for Pinterest stock.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.