One of the big winners of 2020, Pinterest (NYSE:PINS) garnered a lot of attention and drew users to its portal as we spent long hours at home during the pandemic. The company made the most of the pandemic and PINS stock rallied over the past year with an increase of 140%.
Lately, the stock has been volatile as investor sentiment cools. The California-based social media platform recently reported second quarter results and despite beating analyst estimates, PINS stock is slumping. The stock’s price was as high as $89.90 in February 2021 and is close to $60 today.
PINS stock dropped significantly after the earnings announcement. However, I believe this dip is temporary and a great opportunity to add it to your portfolio.
With that in mind, let’s take a look at the investment case for PINS stock.
PINS Stock and Its Strong Q2 Results
The major driver behind the slump in PINS stock is the company’s Q2 results. Pinterest reported adjusted earnings of 25 cents per share and revenue of $613 million, beating analyst expectations of $562 million. Revenue increased 125% year-over-year (YOY) and the company reported a net income of $70 million compared to a loss the same period in the previous year.
Pinterest’s U.S. revenue increased by 107% YOY and international revenue increased by 227% YOY.
Pinterest reported 454 million monthly active users, which is slightly below expectations of 482 million. However, the number of monthly active users increased year over year. And despite the slowdown in user growth, the net revenue per user has increased significantly. The average revenue per user is $1.32 compared to 70 cents in Q2 2020.
For the third quarter, the company expects revenue to grow about 40% YOY. This is slightly lower than the growth it saw in the first two quarters of 2021.
Potential to Change the Future of E-Commerce
Pinterest is not only about sharing images and pinning them. It has strong potential to change the way people search and shop. The company has made strategic partnerships with businesses to allow its users to shop conveniently.
It also offers a range of services for content creators and several of these users vouch for Pinterest. The company has a strong cash balance that will allow it to grow and invest in technology that will attract new users.
Recently, Pinterest has doubled revenue, generated profit and enjoyed high user engagement. This proves the strength of this social media giant.
The dip in monthly users could be attributed to the pandemic and the way it has changed many people’s routines. This spring, some started to step out of their homes, returned to offices and resume socializing in person. These changes in behavior could have easily led to the dip in active monthly users. But that should not be the sole factor used to judge the future of Pinterest.
The Bottom Line on PINS Stock
Pinterest has reported stellar revenue and net income for the quarter. The only pain point is its decline in its active users.
I believe this dip is temporary and reflects the market’s sentiment regarding the decline in monthly active users. But the stock should pick up the pace soon and generate a return for investors.
The company has managed to generate net income this quarter, which will be reflected in the coming quarter as well. I believe Pinterest has a lot to offer its users. If it continues to attract new users and monetize its content, it will be able to hit strong numbers in the third quarter.
Considering its growth prospects, PINS stock looks cheap. This dip is an ideal chance to buy.
On the date of publication, Vandita Jadeja 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.
Vandita Jadeja is a CPA and a freelance financial copywriter who loves to read and write about stocks. She believes in buying and holding for long term gains. Her knowledge of words and numbers helps her write clear stock analysis.