Take Advantage of Pinterest Volatility While You Still Can

It’s been a quiet year for me when it comes to Pinterest (NYSE:PINS) stock. Seven months into 2021, this is my first commentary on the social media platform.

the pinterest (PINS) logo on a mobile phone held by a woman
Source: Nopparat Khokthong / Shutterstock.com

I last wrote about PINS in December 2020. I commented on how I first recommended its stock in September 2019, calling it a buy under $30. If you took my advice, it’s up 188% in the 22 months since. 

Now, I see that the class-action lawsuit ambulance chasers are out in full force, looking for redemption for clients who feel 30% growth in monthly active users (MAUs) is the ultimate betrayal. 

Far from it but lawyers have got to eat, too.

As a result of this so-called “lack of performance,” PINS has been extremely volatile this year. For example, on three separate occasions, PINS stock has traded above $80 and below $65.

If you’re thinking of buying Pinterest, remain patient, and use its volatility to your advantage. Currently trading at around $73, there is an excellent chance to retest $65 before the end of the year.

The company reports Q2 2021 results on July 29 after the markets close. Another so-called disappointment in MAU growth will likely knock its stock for a double-digit loss. 

I would wait until after it announces to buy PINS stock. Then, hopefully, you can get it at a short-term discount. 

Long-term, I continue to like it. Here’s why. 

The Closest PINS Stock Has Gotten to $100

PINS hit its all-time high of $89.90 on Feb. 16. That was less than two weeks after announcing Q4 2020 results that included 76% revenue growth and 37% growth in MAUs. 

“We welcomed over 100 million additional monthly active users to Pinterest in 2020, more than any other year in our history, and now we reach more than 450 million monthly active users around the world,” said CEO Ben Silbermann on Feb. 4. 

For perspective, in July 2019, I mentioned that Pinterest had 300 million MAUs. At the end of March 2021, it had 478 million, a cumulative increase of 59% over approximately 24 months. 

In July 2019, I said that when Pinterest’s international average revenue per user (ARPU) hit $1, I argued that it would be making money on a non-GAAP basis. 

In Q1 2021, Pinterest’s overall ARPU was $1.04, 34% higher than a year earlier. The U.S. ARPU was $3.99, 50% higher year-over-year (YoY), while its international ARPU jumped 91% to $0.26 from $0.13 a year earlier. Its international revenue accounted for 20% of overall revenue in the first quarter, up from 14% a year earlier. 

It’s coming on, but it’s nowhere near an international ARPU of $1 or more.

However, its non-GAAP profitability is way ahead of my expectations. In the first quarter, its non-GAAP profit was $78.5 million. That compares to a non-GAAP loss of $60 million in Q1 2020. In terms of GAAP, it lost $0.03, well down from a 25-cent loss a year earlier. 

The lawyers and disgruntled investors have conveniently forgotten this part of the equation. 

What Do Analysts Think?

A total of 28 analysts are currently covering PINS stock. Of those, only one rates it “underweight” or an outright “sell.” In addition, the median target price is $83, suggesting they believe there’s little upside over the next 12 months.  

In April, after it reported its first-quarter results, analysts weighed in on the subject of Pinterest’s growth.  

“We expect investor’s attention to be on the decelerating monthly active user growth, but the engagement benefits from the pandemic due to the various levels of shelter-in-place were always going to be unsustainable,” Benzinga reported Credit Suisse analyst Stephen Ju writing in a note in late April.

Ju emphasized that Pinterest needs to focus on its international business. I couldn’t agree more. The U.S. business isn’t fully maxed out, but it’s getting there. Meanwhile, in Q1 2021, its international ARPU was 6.5% of its U.S. ARPU. 

From Q1 2018 through Q1 2021, its international ARPU has grown from $0.05 to $0.08 to $0.13 to $0.26. Overall, that’s 420% growth over three years. In the U.S., the three-year growth rate is 151%. 

Analysts obviously don’t feel the international business can hold a candle to the U.S. I would disagree. Within 2-3 years, Pinterest will be generating more revenue outside the U.S. than domestically. 

When that happens, you can be sure PINS won’t be trading in double digits. 

In the meantime, take advantage of the volatility to buy PINS in the $60s from time to time. Long-term, once it starts generating consistent profits, you won’t get nearly as many opportunities to buy on the dips. 

Don’t look a gift horse in the mouth. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.


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