Pinterest (NYSE:PINS) is a popular social media stock that performed exceptionally well in 2020. But with the end of the pandemic coming closer, Pinterest is losing charm. People had to look for stay-at-home activities during 2020 but it only lasted for a short period of time. PINS stock saw a high of $89 in February 2021 and has been declining since then. It has not moved beyond the range of $50s since the past month and I do not think it is going to move up anytime soon.
After the massive bull run, the stock is taking a breather. PINS stock went from $12 in March 2020 to $85 11 months later. This is no small feat. However, as we start to step out of our homes and resume normal life, PINS stock looks in trouble.
The company also reported a dip in the user base for the second quarter. I do not think this is the right time to invest in PINS stock. Let’s dig deeper into my investment case.
PINS Stock Suffers User Decline
The start of the pandemic gave a push to Pinterest but users will not simply abandon it once the reopening is in full effect. However, the second-quarter numbers show a decline in user base and highlight the decline in user interest.
We are no longer searching for ways to make banana bread at home or add aesthetics to our home with DIY decor ideas. There is a growth in global monthly active users but it is not adequate. The third quarter will see a further decline in active users and it will prove that the company is unable to engage with the users efficiently. Additionally, the Q3 guidance has been a no-show which is a demotivating factor for investors.
A decline in user base leads to a decline in revenue and a loss of interest from investors.
No Profits on the Horizon
A major risk factor is the slow profitability of the company. It does have solid revenue growth but the profit numbers are not impressive. Pinterest has reported a net loss for the past four years and I believe it will continue to do so this year.
If the company is unable to report profits in the coming years, it will end up losing investor interest. Lack of profit is also a sign of an inefficient business model and shows that the company is not doing something right.
The company does have a very strong balance sheet but all might not be well in the post-pandemic world. Despite the solid cash balance, the profitability is not yet present and this is one factor that could bring PINS stock down in the coming quarters.
What To Do With PINS Stock
If you already own the stock, I would not recommend selling it at the current level. It is best to hold on to the stock and wait for a rise in the long-term.
However, if you are thinking about buying PINS stock, it is best to avoid doing it at this stage. The stock could be trading at a discount but the next earnings report might lead to a further drop. PINS stock has shown a decline after announcing reports for Q1 and Q2 and the same might happen in the near future.
Pinterest is competing with strong players in the industry and it will have to enhance its offerings to ensure high customer engagement and satisfaction. The company needs to have a game plan to attract users in a post-Covid world. Until then, stay away from PINS stock.
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.
