Compared to its social networking peers, Pinterest (NYSE:PINS) stock is very compelling.
PINS stock is still a fraction of the size of Facebook (NASDAQ:FB), it does not carry the controversy attached to Twitter (NYSE:TWTR). As its user base grows, so does Pinterest’s potential as a retail play.
Why does Pinterest have strong tailwinds lifting its growth rates? Investors need to look at the company’s fourth-quarter results first.
Q4 Justifies Valuation in PINS Stock
In the fourth quarter, Pinterest posted a 76% year-over-year growth in revenue to $706 million. For the year, revenue grew by 48% Y/Y. Pinterest enjoyed a monthly active user base of 459 million. International active users are growing at a faster pace than the U.S. base (slide 4).
The average revenue per user continues to rise at an impressive rate. Global ARPU rose by 29% Y/Y to $1.57. The U.S. ARPU is even stronger, growing by 49% Y/Y to $5.94.
Pinterest posted a non-GAAP net income of $294.3 million. Expense growth is modest. Looking ahead, Chief Financial Officer Todd Morgenfeld said on the conference call that Q1 expenses will be at similar levels compared to the fourth quarter.
Pinterest will continue to invest in its key strategic priorities. That includes engagement, content, advertiser success, and shopping.
Despite the Covid-19 environment, the site offset slower domestic growth through its international strength. It owes its strong performance to the team following a playbook tied back to its priorities.
Pinterest’s Roadmap to Success
On the consumer side, Pinterest will innovate to get people inspired. For example, long-term investments in video will increase user engagement. The site benefited from an increase in video views and user uploads.
On the advertiser side, traders may push ads directly on the platform in the future.
Pinterest is the premier site for users to get inspiration. The company will extend that experience by developing its shopping platform. Advertisers cannot resist that model, and I would expect this to increase advertising spend on the platform, lifting profits.
Price Target
Click to Enlarge
On Wall Street, 12 analysts rate PINS stock as a “buy.” The average price target is $92.39, according to Tipranks.
In the chart, Pinterest shares traded higher as the moving average convergence divergence slope declined. That divergence from the stock price was a bearish signal. The stock found support at the 150-day exponential moving average.
The selling pressure in Pinterest may not end as it follows Nasdaq’s direction. In the last month, selling days offset an attempt for the index to return to new highs.
Investors may use the stock’s decline as a chance to pick up shares at a discount from the high. If higher interest rates stoke fear in technology investors, Pinterest is a good buy at current levels.
The Bottom Line on PINS Stock
Pinterest expects advertisers who were hesitant this year to be back. As the country opens up, the U.S. is likely to show the biggest rebound. Pinterest users are more likely to use the site more often to complement offline shopping with online product searching on the platform.
The company expects positive trends from its investments will give Q1 results a lift. Furthermore, its monetization expansion in Latin America will strengthen its international results.
February’s technology stock rally proved to be a peak moment for the sector. Since the selloff, Pinterest backed down from 52-week highs. When growth investors re-build positions in beat-up stocks, they will buy Pinterest for its proven prospects.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
