Social media firm Pinterest (NYSE:PINS) stock was part of last year’s crop of initial public offerings — a dubious distinction given how the 2019 batch of newly public companies was the least profitable since the height of the tech bubble in 2000.
Following a Jan. 10 close at $19.78, PINS stock is more than 46% below its 52-week high and barely above its $19 IPO price. The stock hasn’t closed above its 50-day moving average since September. Said differently, it’s been pretty easy to be bearish on Pinterest, but it might soon be tricky to short the social media name, particularly after it rallied 7.73% last week.
And Pinterest has some supporters. Entering this year, RBC Capital internet analyst Mark Mahaney said investor sentiment on some of last year’s more ballyhooed IPOs, including Pinterest, Lyft (NASDAQ:LYFT) and Uber (NYSE:UBER), had grown too sour and some of 2019’s IPO disappointments are poised to bounce back this year.
Mahaney isn’t the only analyst waxing bullish on PINS stock. Just listen to Bloomberg:
“Almost half of Wall Street analysts tracked by Bloomberg recommend buying the stock and hedge funds now account for 22% of shareholders, up from 16% in August, according to data compiled by Bloomberg.”
“It’s Caught on Something Really Unique”
While the idea of social media may feel ancient, investing in social media is still fairly new, and not uniquely American. For example, the Global X Social Media ETF (NASDAQ:SOCL) holds just 40 stocks, 45% of which are U.S. companies.
These days, it feels like the U.S. social media scene mostly revolves around Facebook (NASDAQ:FB) (including Instagram), Snap (NYSE:SNAP) and Twitter (NYSE:TWTR), with Pinterest practically an afterthought. However the fact that Pinterest isn’t Facebook or Twitter could work to the company’s advantage.
Facebook and Twitter have had serious issues with regards to data privacy. Then there was Twitter’s decision to not run political ads in 2020, a presidential election year, a call that sent TWTR stock tumbling. And there’s the slew of studies confirming that platforms like Facebook and Twitter create angst and negativity among users.
A study by the University of California San Diego indicates negativity on social media begets more negativity.
“Our study suggests that people are not just choosing other people like themselves to associate with but actually causing their friends’ emotional expressions to change,” said lead author James Fowler, professor of political science in the School of Medicine at UC San Diego.
Fortunately for PINS stock, its users aren’t coming to the venue seeking political debate or spirited discussions on gender, race or the other intellectual pursuits that frequently fire up so many Facebook and Twitter users.
Rather, Pinterest users, who data say are heavily female and millennial, embrace the platform for ideas and pursuits such as art and décor, gadgets, recipes and shopping. Moreover, Pinterest users are generally affluent and educated, with 40% making at least $100,000 annually.
Having a refined audience isn’t a bad thing in the internet and e-commerce worlds, and these days, offering a social media platform that doesn’t act as a stage for people to gripe about politics is a plus, not a disadvantage.
“It’s caught on something really unique,” Wedbush analyst Ygal Arounian, who rated the stock “outperform,” said in an interview with Bloomberg. “They just need to be able to execute and put all the pieces together in order to capture that opportunity.”
The Bottom Line on PINS Stock
As is the case with many of its 2019 IPO brethren, the best way for Pinterest to assuage skittish investors this year is to articulate a road to profitability. With its user base growing more rapidly than those of Facebook or Twitter, Pinterest’s profitability aspiration revolve largely around ad revenue and effectively monetizing those users.
Fortunately for Pinterest and those considering the stock, there are multiple tailwinds. First, the digital advertising market continues growing and it’s likely advertisers will be looking for venues beyond Facebook and Google in the year’s ahead. Second, data confirm Pinterest users will make purchases on the site. Third, Pinterest is force in online retail referrals – much more so than Facebook, Snap and Twitter.
There’s a road to profitability with PINS stock and it’s now on management to highlight that vision to investors’ satisfaction.
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.