Pinterest Is a Strong Contrarian Play Following Its Earnings Report

There’s a lot of reason to be bullish regarding Pinterest (NYSE:PINS) stock following its recent earnings statement. I’ll get into whether that earnings report constituted a disappointment or not in a minute, but first let’s simply look at raw price numbers. 

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

These figures strongly suggest that now is a great time to get on board with an investment in Pinterest shares. 

Simple Upside for PINS Stock

On July 29, Pinterest released its Q2 earnings to much consternation on the part of Wall Street. Shares plunged from $72 per share to under $58 in a matter of 24 hours. I’ll get to why I believe that was an overreaction on behalf of the market in a moment. 

However, I’d first like to note that there is clear upside price appreciation at present. PINS stock is still trading sideways almost two weeks after the news, so there’s still opportunity to get on board with that upside. 

The average stock price target for Pinterest shares is currently $72.09. That indicates greater than 28% upside right now. And those target prices range as high as $100. 

The bull thesis here is as straightforward as they come: Buy the dip before the broader market realizes the degree of the overreaction that occurred on July 29. So, what caused the market to react so negatively a few weeks ago?

One Issue

In what looked like an otherwise stellar earnings report, there was a single issue. It was found in the second paragraph of the company’s guidance section of the report. 

It stated: 

Engagement headwinds on Pinterest have continued in July. As of July 27, 2021, U.S. MAUs have declined approximately 7% and global MAUs have grown approximately 5% year over year*. The evolution of the COVID-19 pandemic and related restrictions remain unknown, and we are not providing guidance on Q3 2021 MAUs given our lack of visibility into certain key drivers of engagement.

So, there was a relatively sharp decline in MAUs and some confusion around the reported number. The report itself states a 5% decline, while a Barron’s report later clarified the discrepancy adding that the company further disclosed declines in the U.S. MAUs nearer the earnings release. Thus, the 7% figure. 

Pinterest CEO Ben Silbermann explained that the decline was attributable to the pandemic’s easing. The company received a big boost in MAUs due to lockdowns across the U.S. earlier in the pandemic. 

For the contrarian investor, this all points to opportunity because the report was very strong otherwise. 

Revenue Growth 

Usually, companies that record overall revenue growth of 125% on a year-over-year basis don’t get dinged. But that’s exactly what happened to Pinterest on July 29. 

The company’s global revenues rose to $613 million, compared to $272 million in the same quarter a year ago. But the supposed issue was one within the U.S. as and MAUs here. Again, the overall number of users did drop by 5%, from 96 million to 91 million. 

But the glass-half-full crowd should be emboldened by the fact that within the U.S. revenue still increased 107% on the backs of 5% fewer users. Granted, no company likes to see user numbers decline. 

But when they do, most companies would be ecstatic to see revenues rise from $232 million to $480 million despite a 5% smaller user base. 

Otherwise, the company also witnessed strong growth in average revenue on a per user basis (ARPU). Part of the concern with a decline in U.S. MAUs is that U.S. users generate much higher revenues than their international counterparts. 

An average U.S. user generates $5.08 in revenues while those internationally generate a significantly lower 36 cents. 

But, again, U.S. revenue growth was massive. And that is where the contrarian investor can benefit by ignoring the narrative regarding the slight user base decline. Instead consider that revenues grew massively and the decline could easily be attributable to the pandemic.

On the date of publication, Alex Sirois 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.


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