Despite last fall’s big sell off, Pinterest (NYSE:PINS) stock remains priced for perfection. Shares no longer trade at a substantial premium to peers like Facebook (NASDAQ:FB). But PINS stock’s future price movement hinges on international monetization success.
Domestic user growth has been maxed out. The future of Pinterest lies with overseas user growth. However, the bar isn’t set high for Pinterest stock. Plenty of runway remains in affluent Western markets. The craft-social media platform doesn’t have to set the world on fire to meet 2020 revenue expectations.
What does this mean for the PINS stock price? Shares are more reasonably valued. But 2020 monetization success could send the stock up to prior levels. On the other hand, short-term growing pains could send Pinterest stock to new lows.
PINS Stock Price Dependent on ARPU Growth
Pinterest has gained critical mass domestically. Now it’s time to cash the check. But compared to Facebook, Pinterest has a long way to go. Facebook’s global quarterly ARPU is a staggering $7.26, compared to Pinterest’s 90-cents global ARPU.
But Facebook’s ecosystem offers better monetization opportunities. Facebook is also a mature operation. The monetization party has just started for Pinterest stock. Yet, can it catch up?
Honestly, I don’t expect Pinterest to reach Facebook’s ARPU levels. Catching up to Snap’s (NYSE:SNAP) ARPU levels may be a more achievable goal. The issue with Pinterest is the wide spread between U.S. ARPU and international ARPU.
Domestically, average revenue per user is $2.93. Overseas, it’s just $0.13. But chalk this up to growing pains. Pinterest’s U.S. active users only grew 8% in the prior quarter. Comparatively, Pinterest grew 38% overseas in the same period. It takes time to monetize a growing user base.
Based on Snap’s Q3 ARPU by region, the camera app generated $3.75 per user in North America. In Europe, $1.05 per user. The rest of the world, $1.01 per user. In other words, Pinterest has plenty of runway to grow per-user revenues.
But growing domestic ARPU could be a challenge. Purely anecdotal, but I recently discussed Pinterest with my girlfriend and mother. They don’t like Pinterest’s increased ad display. If other domestic users feel the same, the company could have challenges balancing user experience against revenue maximization. This is a big risk for PINS stock.
However, the U.S. market isn’t the only game in town. User expansion in other developed economies could be the key to move the PINS stock price higher.
Growth in Western Markets Could Save the Day
Analyst consensus calls for 2020 revenue of $1.5 billion. Investors have been scared off by decelerating revenue growth. But Pinterest has the potential to meet expectations.
For instance, say Pinterest’s domestic ARPU and user base stays constant. Those 87 million users times $2.93 quarterly ARPU means around $255 million a quarter. In other words, $1.02 billion per year in revenue. That means PINS stock needs about $500 million in revenue to meet sales projections. Assuming international users grow 30% next year, that gives us 306 million overseas users. Therefore, Pinterest only needs ARPU of 41 cents a quarter from its international operations.
One positive for Pinterest stock is its success in other Western markets. Affluent countries like Germany, France, and the U.K. now have over 10 million Pinterest users each. These countries have 20%-25% of the U.S.’s population size.
If market penetration reaches domestic levels (about 26.6%), Pinterest could grow their user base in these countries from 10 million-11 million to 17 million-21 million users per country. Growth in these markets could move the monetization needle for PINS stock.
Is this enough to move the PINS stock price long term? At 300 million global users, Pinterest is not far behind Snapchat and Twitter. Given its niche, I don’t expect it to become a Facebook-sized global ecosystem.
Pinterest Stock Could Rebound … If Monetization is Fast Enough
Pinterest stock needs overseas monetization to move the needle. Domestically, the company has maxed out its user base. Eight out of 10 U.S. moms already use the platform. Sounds like a quote from a vitamin commercial, but it spells out in a nutshell Pinterest’s dependence on international moms (and friends) for growth.
Pinterest stock isn’t that expensive. Shares now trade for 6.6 times estimated 2020 sales. Facebook trades for 6.5 times estimated 2020 sales. But shares could go lower in the near term. Tax-loss selling could continue until the end of December, which could push shares close to the $15 level.
But over the coming year, everything hinges on monetization speed. If the company succeeds in turning overseas users into ad sales, expect PINS stock to head back toward the $30 price level. Yet, if monetization takes more time, expect shares to be dead money.
The long-term challenge for the PINS stock price is keeping the growth train chugging along. Shares could see a short-term boost as user adoption overseas reaches domestic levels. But after that, where is the growth?
With this in mind, consider PINS stock as a short-term play. A crumb of good news could send shares higher next year. But long term, tread carefully.
As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.