Pinterest (NYSE:PINS) seems to follow in the footsteps of its social media predecessors. The initial excitement has given way to selling as Pinterest stock again falls below its IPO price.
Like other social media stocks, it needs to show it can attract revenue to attract stock buyers. However, with a growing user base and higher-income users taking advantage of the site, the buyers should eventually return to Pinterest stock.
In October, I described the most significant challenge with PINS stock is “figuring it out.” While the stock price and chart patterns change, I continue to hold to that assertion.
Much like social media counterparts Twitter (NYSE:TWTR) and Snap (NYSE:SNAP), PINS stock received an initial bump following its IPO only to see a severe drop. Much of that decline came following the third-quarter earnings report. A revenue and earnings miss sent Pinterest stock tumbling by 17% in a single day following the announcement.
Now, the PINS stock price has fallen to around $18.75 per share. This comes in slightly below the IPO price of $19 per share, but it also represents a massive drop from summer highs.
Despite the drop, fundamentals continue to offer little help in evaluating PINS stock. The price-to-sales (PS) ratio of 10.7 makes Pinterest expensive but hardly puts it in the bubble territory of some newly-minted internet stocks.
However, what investors want to know is whether PINS stock has reached a “buyable level.” The short answer is maybe.
Like other social media equities, PINS stock will live and die on its ability to monetize its user base. Looking at the history of Facebook (NASDAQ:FB), Twitter, and Snap before it, none of these stocks performed well long term until they figured out how to derive revenue from their sites.
Now Pinterest stock faces this challenge. The good news is that the site is well-positioned to do just that. As Luke Lango points out, it has also pushed through integrations with Shopify (NYSE:SHOP) that should boost its value as an advertising vehicle.
Pinterest’s Favorable Positioning
Like Snapchat and Instagram, it operates as a primarily visual site. However, it allows users to interact with the visuals as well.
Moreover, unlike Snapchat, its design makes it harder for Facebook or other social media platforms to co-opt its features. Furthermore, as Todd Shriber mentions, Pinterest benefits from favorable demographic trends. About 34% of the site’s users fall into the 18-49 demographic.
The site also reaches 83% of American women between 25 and 52. Also, about 80% of new users come from outside the U.S., and about 50% of these new users are men. This does not trap the site into the teen and young adult group that describes the majority of Snapchat users.
More importantly, this older user base attracts a higher-income demographic. This would allow it to sell higher-value ads in the same manner as Facebook and Twitter. Some analysts believe Pinterest will turn profitable next year.
The stock remains on a clear downtrend. Investors rarely win fighting the herd, so I think traders should stay on the sidelines for now. That said, if it can effectively monetize this base and forge a path to positive earnings, I see it going much higher from current levels.
The Bottom Line on Pinterest Stock
The future of PINS stock depends on how well it monetizes its user base. Like its social media counterparts before it, Pinterest stock has fallen back to its IPO price as the initial hype faded. Hence, like Twitter and Snapchat before it, the future of PINS depends on monetizing the site.
Still, while it may have challenges to overcome, I see PINS stock as better-positioned than SNAP. Its growing demographic is more encompassing and earns more in income than Snapchat’s teen and young-adult users.
PINS stock trades at close to its 52-week high. With it in a continuing downtrend, I would watch rather than wait for now. However, I think once the selling runs its course, PINS should move higher as more users and advertisers turn to Pinterest.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.