Investors are always on the lookout for stocks with good value and there was a time when Pinterest (NYSE:PINS) stock was the first choice of many.
A clear winner in the pandemic, Pinterest garnered all the attention and a massive user base. But as the pandemic started slowing down, its popularity started fading. PINS stock went from the high of $89 in February 2021 to $60 today.
The stock has shown a massive dip in the past six months, as it was trading at $77 in April. The shares are down 8% this year. I believe the stock will continue to show volatility this quarter. In my last article, I had mentioned that investors should wait for the stock to go below $50 to invest and I stand by my opinion.
A major reason behind the dip is the slow growth of the user base. As we return to normalcy, users are spending less time on social media, and this has led to a decline in the user base. However, there are other reasons that will continue to have an adverse effect on PINS stock. Let us take a look at them.
Massive Competition
Pinterest is known for the virtual pinboards where you can share and see photos and videos of interests and hobbies. It became a top choice for DIY enthusiasts and advertisers. The company has also partnered with big retailers to make the shopping experience easy and convenient. However, Pinterest is not the only platform offering this service.
Facebook (NASDAQ:FB) and Instagram offer similar opportunities to companies, customers, and marketing professionals. On top of that, Instagram allows consumers to click on the product and shop right away. It has become easy and convenient for those looking to explore and buy. Pinterest does not offer anything new to customers and it will have to work on the niche to attract and retain users. Other platforms are quickly catching up and they could take a huge market share from Pinterest.
Q3 Results
The company’s Q2 results were impressive but the user growth declined, and this led to a dip in the stock. Pinterest did not issue Q3 estimates due to the unknown impact of the pandemic. The situation is different from what it was last year and there is a shift in consumer behavior. This will have an impact on the bottom line.
Profit margins are high, but the user growth is slowing down and this means advertisers will also reduce their spending on the platform. If digital ad spending recovers, Pinterest will have to show a strong user base to attract advertisers and increase revenue.
Investors should not only look at the user growth but understand that monetization should grow. If they can work on it, the company will show a strong recovery in the coming months.
The Bottom Line on PINS Stock
The long-term story may look interesting but for now, PINS stock will continue to decline. Q3 results may lead to a further dip in stock, and it could be a great opportunity to add it to your portfolio. Until then, wait and watch.
As my colleague Will Ashworth states that investors should forget about Covid-19 when investing in PINS stock. However, I believe the short-term impact will lead to a dip in the stock and this is when investors should enter. My colleague further adds, there is no harm in waiting for a dip.
I am not saying Pinterest is a bad company but it is no longer a pandemic darling. Its best days are gone and as the stock continues to decline, wait for it to hit rock bottom before making a move.
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.
