One of the hottest initial public offerings of 2019, Pinterest (NYSE:PINS), started out making good on the hype. After going vertical for several sessions after its debut, Pinterest stock subsequently became choppy, and a revenue miss combined with disappointing guidance during its third-quarter 2019 conference call quickly sank shares. But does that depression present an opportunity for investors?
Personally, I’ve been skeptical about this stock. Although the underlying company is very relevant with the youth market, social media is a very crowded sector. With Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), Snap (NYSE:SNAP) and others competing for attention, it’s hard to get too excited about yet another social media company.
On the flip side, this industry is notorious for producing slow starts. Most recently, we only need to look at Snap’s IPO drama, which saw the company stumble out of the gate. But since late 2018, SNAP has been one of the top-performing stocks. It seems like Wall Street just needed some time to get comfortable with the underlying business proposition.
So, should you gamble on Pinterest stock, especially given it still trades at a discount relative to 2019 highs? Here are two pros and two cons to consider.
Pro: Pinterest Stock Benefits from Youthful Popularity
When it comes to social media firms, eyeballs are everything. However, not all traffic sources have the same level of desirability. Just like traditional media companies target the 18 to 49 demographic, social media companies have similar attitudes. The difference here is that Pinterest has gained serious traction with the young demo.
According to data from the Pew Research Center, a respectable 34% of U.S. adults ages 18 to 29 use Pinterest. Additionally, 35% of those ages 30 to 49 use the platform. That beats out rivals Twitter (26%) and Snapchat (25%).
Critically, the usage of Pinterest stays nearly consistent between young adults and “young-ish” adults. This factor separates the platform from something like Snapchat, which is clearly geared toward youthful frivolities. As Snapchat users grow up, they quickly abandon the app.
This also tells me that people use the platform for reasons unrelated to age-defined behaviors. In other words, you can grow with Pinterest stock, which you can’t always say for other social-media related investments.
Pro: It’s Attractive to Advertisers
Another interesting factor with positive implications for the stock is the underlying platform’s attractiveness to educated users. In fact, between Pinterest, Twitter and Snap, the former features the most educated user base.
Again, data from Pew indicates that 32% of Pinterest users have some college education, while 38% have college degrees. In both categories, the company beats its primary rivals by a conspicuous margin.
Combined with the consistent use across age groups, Pinterest also has a relatively wealthy user base. According to Pew, 34% of U.S. adult Pinterest users make between $50,000 to $74,999 a year, and 39% make $75,000 or more. Again, in both of these income brackets, PINS beats out Twitter and Snapchat.
As a result, the company is very appealing to advertisers. Not only is the app popular among key demographics, those demographics have the money to plunk down on desirable goods.
Con: Pinterest Skews Heavily Female
Speaking as a man, there are many instances where a heavily female-skewed audience is desirable. But with Pinterest stock, such gender imbalances represent a liability. Approximately 70% of the app’s users are women, which is a huge problem.
As I stated above, social media is all about the eyeballs. And while some eyeballs are more desirable than others, few companies can afford to be deliberately selective about their traffic. Now, the company has never set out to be a female-oriented platform. But without greater male participation, the underlying company’s ultimate attractiveness to advertisers is necessarily limited.
To be fair, 50% of 2018’s new sign-ups on the platform were men. But even with more men joining the platform, social media forecasts indicate that the gender split won’t change appreciably from where it’s at today. Thus, while advertisers appreciate the income level of Pinterest users, the skewed user base is a headwind.
Con: Where’s the Beef?
Not only does Pinterest stock suffer from imbalanced gender ratios, I don’t care for how the app is commonly used.
In the U.S. market, the platform’s most popular category is art, art supplies and hobbies. As someone who dabbles in and supports the arts, I have no problem with this per se. However, this category just doesn’t bring in the big bucks. If you don’t believe me, consider the troubles some arts and crafts specialists have suffered in the past year.
Given that the company’s user base leans heavily female, I’m not surprised that this category ranks tops on the platform. But what about the men who use Pinterest?
Not surprisingly, the technology category is popular among the guys, but so are food and drinks. This leads me to believe that Pinterest lacks traction with high-dollar industries. And that’s another concern as it relates to attracting advertisers.
The Bottom Line on PINS
At its higher valuation last year, Pinterest stock was an easy sell. But at the present relative discount, I can see why many people are interested in buying. At these prices, I’m not against taking a speculative bet. However, the company’s longer-term headwinds leave room for pause.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.