I don’t personally understand Pinterest (NYSE:PINS). But my lack of understanding of the underlying social media phenomenon doesn’t keep me from noticing a deeply distressing move by PINS stock. Now, the question is whether my personal assessment of the business is rooted in a substantive issue or just an unfortunate coincidence.
By now, you’ve probably had some time to digest the bad news that saw PINS stock plummet over 18% on the final session of July. To say that was a disappointment would be a gross understatement. In one fell swoop, Pinterest shares find themselves down 13% for the year. Just a day earlier, shares were up almost 10% — a terribly tragic numerical difference.
Responsible for the devastation was the second-quarter earnings report, specifically the monthly active user (MAU) count of 454 million. Taken by itself, such a user base doesn’t seem so bad until you compare it with Q1’s result. Just a few months earlier, MAUs tallied 478 million, or a loss of 5%.
Of course, there are two things going on here. First, the 5% loss is devastating. Second and more importantly, social media platforms live or die based on traffic and engagement. Ultimately, the point is to corral such metrics into conversion for advertising purposes or other revenue-generating synergies. Thus, potential Pinterest clients might look at this MAU erosion and decide to take their business elsewhere.
Management explained the shortfall due to a “disproportionate” bump in growth due to Covid-19. During most of last year and much of this year, millions of worker bees found themselves operating remotely, giving them more time to dilly-dally online. But as society normalized, MAUs dropped off, which in turn boded poorly for PINS stock.
I get it. At the same time, it speaks to the worrying demographic profile of Pinterest that I mentioned years ago.
Demo-centric Business Model May Hurt PINS Stock
Back in October 2019 — that seemed like a lifetime ago, doesn’t it? — I was hesitant about PINS stock because the underlying company was heavily geared toward a female audience. Let me be clear, I don’t think there’s anything wrong with that per se. But when you’re a social media platform, you need as wide of an audience base as possible.
Just appealing to women leaves out roughly half of the population, which is problematic. Of course, Pinterest isn’t exclusively female, but back in October 2019, 70% of its users were women. As of the latest data, 77% of Pinterest users are female.
A couple of things here. First, part of the reason why Pinterest experienced a drop off in MAUs is likely due to male users who found the platform intriguing during lockdowns. That makes sense because what else were you to do during quarantine? But as soon as society began reopening in earnest — such as ballgames going back to full capacity — the dudes skipped town. Typical, some of you might be saying.
But it’s also interesting that pre-pandemic to post-pandemic, the female user base increased on a percentage basis. While I can’t decisively prove it, the interpretation I have is that working class women saw a sudden increase in their free time due to the Covid-19 lockdowns. Once that crisis began fading in magnitude — notwithstanding the current spike from the delta variant — companies began recalling their employees.
Eventually, working women went back to the office, which in turn hurt traffic and engagement. If this thesis is correct, then it points to a very real possibility that PINS stock is driven by women of privilege. And that would be an even bigger demographic problem.
Pinterest May Have Peaked
By women of privilege, I’m exclusively talking about class; that is, women that are self-employed, are privately wealthy or have earned the right not to be in the office all the time during normal business hours. For this particular demo, Pinterest has the market cornered.
Further, while my thesis is an interpretation of data, what cannot be denied is that Pinterest, for whatever reason, could not maintain its user base from the Covid-19 era into the post-Covid-19 era. And given that, we have to ask, why not?
Pinterest is a free platform. The main point is to share images and ideas with others. Having a paid membership would be anathema to its ethos. So losing 5% of MAUs suggests that there’s some serious vulnerability in the demographics.
Maybe it’s not income and class related, though I think that’s the case. But whatever it is, it’s enough to cause double-digit damage to PINS stock. Obviously, then, conservative investors should wait for Pinterest’s Q3 report before pulling the trigger.
On the date of publication, Josh Enomoto 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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.