Pinterest (NYSE:PINS), the image sharing social media network, was a big hit during the pandemic. Being stuck in lockdown, with stimulus checks to spend and looking for home renovation ideas online, Americans spent more time than ever on Pinterest in 2020. That big growth in user engagement paid off for shareholders. PINS stock posted a 254% gain in 2020.
That’s the kind of return that growth investors dream of. 2021 has been a shock for those who were enjoying triple-digit returns last year. At this point, PINS is down nearly 20% since the start of the year.
PINS stock is trading below $55 after closing 2020 at $65.90 and peaking at an all-time high close of $89.15 on Feb. 16. On July 30, it was hammered, with shares dropping 18%. Why is the market turning on this 2020 standout?
Should you be concerned about the shift in sentiment, or does the punishment of PINS stock open a door? With a B-rating in Portfolio Grader and significant long-term growth potential (more on that shortly), Pinterest should be on your radar if you’re looking for a discounted social media stock to add to your portfolio.
Let me explain why.
PINS Stock: Record Q2 Earnings Set Off Warning Bells
You don’t expect record quarterly earnings to result in a stock tanking, but that’s exactly what happened to Pinterest shares.
On July 29, Pinterest reported its second-quarter results. Revenue for the quarter was $613 million. That wasn’t just a record for the company, it was also up 125% year-over-year. Net income was $69.4 million, compared to a net loss of $100.7 million in the same quarter last year. Earnings per share of 25 cents beat analyst expectations.
That all sounds very positive. However there were warning signs in there and this spooked the market. In particular, MAU (Monthly Active User) numbers in the U.S. market shrank 7% during the quarter, as people spent less time at home. The trend is worsening, with the company noting: “Engagement headwinds on Pinterest have continued in July. As of July 27, 2021, U.S. MAUs have declined approximately 7%.”
The news about Pinterest’s active American user base shrinking caused panic on the market, with PINS stock closing down 18% the following day. It has continued to slide since then, although it has rallied slightly from when I last wrote about the company.
Q2’s Increase in ARPU and International MAUs Points to Growth Potential
It’s tough to spin losing user engagement in your home market as a positive. And there’s no doubt that the decline in U.S. MAUs is not great news. However, that’s likely exaggerated because of the big increase in users Pinterest gained during the pandemic lockdowns. As people spend time outdoors and doing things they couldn’t last year — like shop in stores and eat in restaurants — it’s only natural they’re spending less time on their PCs and phones.
So that decline is likely going to level off and then rebound. It’s not a flood of U.S. users abandoning Pinterest.
That being said, with a current 91 million MAU’s, the U.S. market is becoming more saturated. However, the international market is not. There are roughly 7.5 billion people living outside of the United States. Pinterest’s international MAUs for Q2 totaled 363 million. And while U.S. MAU’s shrank 5%, international MAU numbers were up 13%. That international market is a huge growth opportunity for Pinterest and it’s in the early stages.
Last year, Pinterest’s CEO gave an interview to CNBC after reporting Q2 2020 earnings. He pointed out the importance of that international market, explaining that it accounted for 9% of total revenue in Q2 2019, but grew to 15% in Q2 2020. In Q2 2021, at $133 million, the international market accounted for 22% of Pinterest’s overall revenue.
The company is not only adding more international users, it’s getting better at monetizing those users.
ARPU (Average Revenue Per User) was $5.08 for the U.S. market and just 36 cents for Pinterest’s international customers. However, ARPU grew 103% YoY for the U.S., and 163% YoY for the international market.
That growth in ARPU is a good sign in general. The high level of growth for the international market is better news. Combine growing MAUs (in a market that’s years from approaching saturation) with rapidly increasing ARPU and you have a recipe for sustained, long-term growth.
Bottom Line on PINS Stock
Investment analysts have a mixed view of Pinterest. I suspect that largely comes down to their view on the international market potential. The analysts polled by CNN Business have a narrow “Hold” consensus for PINS stock, but their median $70 price target does offer 28% upside.
Should you take advantage of the current weakness in PINS stock to make an investment? If you buy into the potential for the international market to power long-term growth, it’s definitely tempting right now.
On the date of publication, Louis Navellier had a long position in PINS. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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