It’s funny, the way market participants can overreact sometimes. My case in point? The reaction to Pinterest’s (NYSE:PINS) first-quarter earning report. Judging from the 10% drop in PINS stock, you might assume that the data was all negative. However, a closer look reveals that Pinterest experienced significant growth in Q1, both in terms of revenues and users.
So, why did the market collectively dump its shares of PINS stock? That’s a valid question — and the answer may reveal something about trader psychology.
Just as importantly, though, this article will also explore some new features that should enhance the Pinterest user experience and hopefully add fuel to the comeback as Pinterest’s share price rebounds.
PINS Stock at a Glance
When PINS stock bottomed out near $12 in March 2020, it was a perfect “buy when there’s blood in the streets” moment.
People were cooped up indoors during the first lockdowns of the pandemic. As a result, many folks passed the time by using social media — and in particular, by using Pinterest.
This phenomenon provided some interest in PINS stock over the ensuing months. The bulls charged ahead relentlessly, pushing the share price past the $85 level in February of 2021 and then again in April.
Of course, with such a powerful run-up, it’s normal for the buyers to pause. Yet, after the Q1 earnings data was released, it felt as if the bulls had capitulated altogether.
PINS stock saw a swift correction, tumbling to around $55 and change in May. Now, a rebound seems to be in progress, however. Today, the share price is already back up to $69 on Jun. 14.
Markets Are Forward-Looking
For this piece, I promised to provide an insight into market psychology. So, in the case of the market’s reaction to the Pinterest earnings release, it’s a textbook example of how traders can be extremely forward-looking.
By multiple measures, Pinterest had a terrific Q1 2021. Here are some of its standout metrics:
- Revenues of $485 million, indicating 78% year-over-year (YOY) growth
- Global average revenue per user (ARPU) expanded by 34% YOY to $1.04
- Global monthly active users (MAUs) increased by 30% YOY to 478 million
- Pinterest also saw international growth with the “recent launch of advertising in Brazil”
The trading community, however, seemed like it could care less about this Q1 performance. Instead, folks were glued to the company’s forward guidance.
Pinterest’s management expects second-quarter revenues to increase by around 105% YOY. On the other hand, though, the company also expects its global MAUs to “grow in the mid-teens” and its stateside MAUs “to be around flat on a year-over-year percentage basis.”
Why is this so important? Well, as InvestorPlace analyst Luke Lango once said, “user growth is the centerpiece of a social media company’s growth narrative.” That deceleration in growth is what took the wind out of Pinterest’s sails.
Evolving the Platform
Based on the turnaround in PINS stock, it looks like the market is realizing that it overreacted to Pinterest’s forward guidance, though. Instead of obsessing over that guidance, informed investors are now considering the steps the company is taking to evolve its platform.
In particular, Pinterest is adding new shopping features for users as well as more selling features for merchants. For the consumers, the “Shopping List” feature will allow “Pinners to automatically save Product Pins in one place.” Plus, users will be notified if price tags are reduced on the items they’ve saved. On top of this, Pinterest is also adding a new “Shop by Search” feature which will enable users to check products by brand and price.
At the other end of users — the platform’s sellers — Pinterest has also extended its Verified Merchant Program to multiple regions across the globe. Additionally, Pinterest’s “Shop Tab” has been introduced into more countries as well.
All of these additions should add nicely to the company’s user growth down the line.
The Takeaway on PINS Stock
Altogether — guidance or not — Pinterest’s new features indicate that the company is effectively responding to the preferences of both consumers and sellers. That makes PINS stock all the more attractive.
So, with a solid Q1 and no need to obsess over its just okay forward-looking statements, PINS seems like a great bet today.
On the date of publication, Louis Navellier had a long position in PINS. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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