Pinterest (NYSE:PINS) was sailing along at the end of 2020, up 250% on the year. But when 2021 rolled around, volatility took hold of PINS stock. 

The latest example of this was the mid-May to early July rally from $55 to $80. This was followed by two weeks of downward momentum that brought the price of PINS stock down almost 17% below where it started the year. 

By now, most investors who care about the social media platform’s shares are fully aware that it delivered a downer of an earnings report on July 29. 

I haven’t covered Pinterest since July, and that was my first chance to discuss its stock in 2021. I argued that two years from now, investors would be “begging to buy PINS stock” for less than $100. It was trading around $70 at the time. 

Down 20% since mid-July, I can’t believe it’s become a contrarian buy. 

Is PINS Stock Worth $100?

I believe it still is. The 28 analysts who cover it have a median target price of $72 with a high of $100 and a low of $40. In terms of ratings, 15 have it as a “buy” or “overweight.” Only one analyst has it as a “sell.” I would assume their target price is the low of $40. 

Naturally, after delivering disappointing second-quarter results, the analysts recalibrated their models. For example, after monthly active users (MAUs) fell to 454 million in Q2 2021 from 478 million in Q2 2021, Evercore ISI lowered its target price by 39% to $60 while also downgrading PINS to “in-line,” or neutral, from “outperform” (overweight). 

According to CNBC, Evercore ISI analysts said the following in a note to investors on July 30:

“This is likely a temporary negative inflection in PINS’ lead metric, but it is a negative inflection, and the company appears to have shed many of the new users it gained during the Covid Crisis … There is now something of an open question as to whether PINS is experiencing maturation risk in its lead market, the U.S.”

While I understand why Evercore ISI made these comments, I don’t think it accurately reflects Pinterest’s entire business. 

First off, we already knew that Pinterest’s MAUs were inflated, so it was only a matter of time before they took a hit. As I said in my July commentary, Pinterest had 300 million MAUs as of June 30, 2019. So, over the course of eight quarters, it has grown them by 51%. That’s 5.3% sequentially per quarter. 

I can remember several times over the past few years when Netflix (NASDAQ:NFLX) took a step back in its user base. It happens. People have lives. Like stocks, you shouldn’t expect its MAUs to go up in a straight trajectory. Life doesn’t work that way. 

As CEO Ben Silbermann stated in the Q2 2021 letter to shareholders, “Several positive trends that emerged during the pandemic continued in Q2 despite these headwinds.” 

Let’s Consider The Positives

As Silbermann stated, Pinterest is focused on four things in 2021: content, the user experience, advertiser support and shopping. Let’s look quickly at each of those.

The CEO took two paragraphs to discuss content, specifically focusing on Idea Pins. The feature was introduced in May in 22 different markets and allows users to present video-first content to their followers. Ideas, the company argues, last longer than stories. As a result, the daily impressions from these Idea Pins are growing exponentially by the day. 

That’s something to look forward to as a shareholder.

The second topic is the user, or “Pinner,” experience. The company is finding that it’s not only maintaining Gen Z Pinners, but also growing them. MAUs under 25 have increased by double digits year-over-year. This generation was especially taken by Idea Pins. The more age groups Pinterest can engage with, the better. 

As part of its efforts to become advertisers’ social media platform of choice, it launched Automatic Bidding for Awareness in the second quarter. As Silbermann stated, almost 75% of its revenue utilized Automatic Bidding. I won’t begin to pretend I’m 100% up to speed on how this is accomplished, but the fact that it’s focused on the advertiser’s success is good enough for me. 

As far back as January 2020, I felt shopping would become an important part of the Pinterest appeal. It certainly has become vital to the platform. 

“In Q2, we saw continued momentum in our ongoing effort to make Pinterest more shoppable. Our product inventory took a big leap forward, with catalog uploads growing nearly 50% quarter over quarter in Q2,” Silbermann stated. 

“This momentum was driven by the expansion of our Shopify integration to international merchants as well as the launch of our multi-feed catalog tool. We plan to begin testing our integration with Automattic’s WooCommerce in Q3.”

Anything Pinterest can do on the shopping front will certainly help drive ad revenues in the future. 

The Bottom Line on PINS Stock

As I reiterated in July, when its international average revenue per user (ARPU) gets to $1, Pinterest will be profitable on a non-GAAP basis. 

How did it do in the second quarter?

International ARPU was $0.36, which was 163% higher than Q2 2020, 227% higher than Q2 2019 and 38% higher than Q1 2021. However, it’s still a long way from $1. 

Lo and behold, I was wrong. Pinterest delivered GAAP profits of $69.4 million in the quarter, up from a $100.7 million loss last year. It also saw a $169.9 million non-GAAP profit, up from a $38.4 million loss a year earlier. 

Additionally, Pinterest’s free cash flow — $370 million over the trailing 12 months — is stronger than it’s ever been. 

I would be totally fine with the MAUs inching along for the next few quarters if it meant revenues, profits and cash flow all kept improving. U.S. ARPU remains strong at $5.08.

With the worst analyst target price set at $40, Pinterest absolutely is a contrarian investor’s dream buy.

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.