Pinterest (NYSE:PINS) is widely viewed as a social media stock. But if it can effectively leverage that status to morph into an e-commerce company, growth in PINS stock could be considerable. And, that’s saying something because the name is up 82.56% this year.
Let’s be real. That performance is impressive and even more so when acknowledging Pinterest is something of a social media also-ran relative to Facebook (NASDAQ:FB) or Twitter (NYSE:TWTR). The average amount of time a Pinterest user spends on the platform, which is close to half an hour per visit, lags the comparable metric for Facebook and Twitter users.
That sounds like a negative against Pinterest, but PINS stock proves otherwise. This is a time when forums like Facebook and Twitter are politically and socially charged. Pinterest – and its boards that users build to display interest in everything from health and wellness to travel to wedding planning and much, much more – are an ideal respite from the toxicity of other social platforms.
Pinterest is aware of this. The company recently revealed a decision to not serve advertisements on any election-related content users drum up on the site.
PINS Stocks Has E-Commerce Opportunity
The differentiation between Pinterest and Twitter is significant for the former’s big time online retail opportunity. Today, this is an early innings, under-appreciated narrative. It offers investors the potential for stellar long-term gains.
Importantly, the narrative is credible. It’s just one anecdote, but Shopify (NYSE:SHOP) has a section of its website dedicated to helping its merchants market more effectively on Pinterest. In fact, Shopify has some compelling statistics regarding why its sellers should be active on Pinterest. And those stats are important to investors, too.
Nine in 10 consumers say Pinterest helps them decide what to buy and 78% say the venue is useful in evaluating items to purchase. Another 66% buy something after seeing a brand’s “Pins,” according to Shopify. Those impressive figures confirm a mega opportunity. That is to say the assessment that Pinterest is just scratching the surface of e-commerce growth is accurate.
What makes Pinterest compelling for investors isn’t it’s number of users – 300 million, though higher than last year. Rather, it is the devotion of those users. Pinterest fans are what’s called in the industry “sticky” and they put their money where their pinning desires are.
Data confirm that active pinners are also more likely to be active shoppers than non-pinners. More than nine in 10 pinners used Pinterest to research or make buys. There’s another point in Pinterest’s favor: an affluent user base that could mesh well with wares offered by sellers on platforms like Etsy (NASDAQ:ETSY). Approximately 40% of Pinterest active users make at least $100,000 a year.
Valuation Isn’t Concerning Here
Whether it’s e-commerce or social media, both groups are homes to plenty of names that are richly valued. Pinterest is probably going to break even on an earnings basis this year and trades around 14.5x 2020 sales.
No, that’s not cheap. However, if revenue grows at around 30% annually over the next three years to the $3.3 billion to $3.5 billion area, today’s 14.5x sales isn’t so frothy.
Adding to the Pinterest case is that user monetization. In the second quarter, the company’s average revenue per user (ARPU) was 70 cents compared to $7-ish for Facebook. That says Pinterest has multiple levers to pull to close that gap. These include international markets (the bulk of ARPU is currently sourced in the U.S.) and leveraging its e-commerce profile into more ad revenue.
Bottom line: With the available runway for growth, PINS stock may look expensive today, but a case could be made it’s actually cheap.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.