Social media stocks have had an eventful year. Due to the pandemic, most of us were stuck at home and the only way to kill time was on social media. Pinterest (NYSE:PINS) stock is one such growth name that made the most of the pandemic.
PINS stock went from $24 in July 2020 to $89 in April 2021. The surge was not sudden and was driven by growing revenue and user base. However, the pandemic is coming close to an end, and we saw a decline in user growth in Q2, which led to a sharp dip in the stock.
PINS stock is currently trading at $52, and I believe it will dip further. The stock may have value in the long term, but you should wait for another dip before buying.
PINS stock will fall below the $50 mark and that is when you should enter. With that in mind, let’s take a closer look at my investment thesis for PINS stock.
Slow Pace Of User Growth Will Continue This Year
The slowdown in PINS stock is mainly due to the lower margin users and it is temporary. However, the company needs to work on its offerings to increase the revenue per user and attract more users to the platform.
Interestingly, the company is working on several new features and has invested its resources in the same, but we will only know about it once they are released. Pinterest needs to work on attracting new users and monetizing them.
It will be interesting to see the future of digital advertising and whether brands continue to choose Pinterest over other social media platforms like Facebook (NASDAQ:FB). If the company sees a rise in the number of brands working with them, it will be able to maintain the momentum and report high revenue numbers. But if the company cannot manage to increase users, brands will not be interested in working with it.
An important factor to consider is the monthly average users and this number fell by 5% in the U.S. The average revenue per user is $5.08 for domestic users and it is a number that matters. A decline in ARPU will affect the bottom line. Pinterest needs to take immediate action to boost the ARPU. If it fails to do so, the revenue will not grow even if the users are increasing.
The international ARPU is as low as 36 cents and this needs to rise. Pinterest is already burning cash for research and marketing activities, and it will have to continue with the same throughout the next quarter. This will also affect the profitability.
The Bottom Line On PINS Stock
Third quarter results could be volatile for the company as we will see a change in user behavior. A lot depends on the state of the pandemic and as we start to step out of our homes and return to normalcy, the use of social media could decline.
The Delta variant will not work for the stock because it has not brought our lives to a standstill. A lot of consumers have accepted the fact that the Delta variant is not as deadly and vaccinated individuals are going out and about in the State.
It could continue to report lower user numbers for the next couple of quarters and this will have an impact on the revenue.
The stock could rise in the long term but now is not the time to add it to your portfolio. Stand on the side and wait for another dip before you make the move.
If you are keen on owning the stock, wait for it to hit rock bottom.
The company is expected to announce Q3 results in October.
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.