Pinterest (NYSE:PINS) stock has lost some of its momentum during the past few weeks, as have many other high-growth names. Pinterest’s share price has dropped from a high of $90 to $74, bringing its market capitalization down to about $46 billion.
But the decline came after a massive rally. During the past year, the shares have logged an impressive return of over five times.
When the novel coronavirus turned into a pandemic, Wall Street thought that Pinterest’s advertising business would come under a great deal of pressure.
But that pressure proved to be temporary. The fact is that the company’s user growth has surged, boosting its top line.
I believe that the recent pullback of PINS stock has created an attractive entry point for three main reasons.
Pinterest’s Growth Outlook
Pinterest’s fourth-quarter earnings report certainly highlighted the company’s underlying strength. Its total revenue spiked 76% to $706 million. And its global MAUs (monthly active user) count rose by 37% to 459 million.
The company has also been able to post solid cash flows. In Q4, its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) was $299 million.
A key to Pinterest’s growth has been the aggressive investments it’s made in new technologies. For example, its Story Pins feature makes it easy for creators to publish short-form, multipage content and stories.
The company has also leveraged AI (artificial intelligence) and ML (machine learning) to improve the recommendations it gives users,. Those technologies have bolstered users’ engagement on the website.
Further, Pinterest has upgraded its automated ad systems, helping to increase the monetization of its content.
In light of the company’s growth, Wall Street remains fairly bullish on PINS stock. According to TipRanks, analysts’ average price target on the shares is $91, nearly 25% above its current levels.
The Platform’s Reputation
Social networks can be extremely powerful because of their network effects. In the latter phenomenon, a service becomes more lucrative for advertisers as its user count climbs. This is why companies like Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Snap (NYSE:SNAP) have become so valuable.
Unlike other large social networks, Pinterest does not have to deal much with hate speech, divisive political discussions, and bad news. As a result, Pinterest’s content is generally much less controversial than that of its peers, the platform is more enjoyable for users and it’s a safer venue for advertisers.
Here’s how Pinterest CEO and founder Ben Silbermann explained the website during the company’s latest earnings call:
“People need a place to dream and be optimistic, away from politics and bad news, they need a space to focus on themselves based on what they want to do, not what other people will like.”
Social Commerce and PINS Stock
A traditional e-commerce platform like Amazon (NASDAQ:AMZN) is definitely convenient, but it is not really fun or engaging.
Pinterest takes a different approach. It’s really a visual search engine that allows users to discover new things, including fresh products, services and experiences.
According to a survey of Pinterest users, about 85% say they use the site to start new projects and 89% use it to guide their purchases.
In other words, the platform has the potential to become a rival to Amazon and/or Google. It seems likely that – in the years ahead – users will want much more immersive content on e-commerce websites, and Pinterest is poised to benefit from this trend.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the founder of WebIPO, which was one of the first platforms for public offerings during the 1990s.