Social media company Pinterest (NYSE:PINS) experienced its best year yet during the pandemic, with its popularity and share price both spiking. But the new normal is not working in its favor. PINS stock hit a 52-week low of $43.30 late last week and currently sits nearly 50% below its all-time high, made in February.
During my previous coverage of PINS stock, I recommended investors wait for shares to hit rock bottom before investing. Well, we just may be there.
Although I don’t see the stock revisiting its pandemic highs, I do think investors who get in now will be rewarded. So, let’s dig deeper into my investment case for PINS stock.
Average Revenue Per User Is Growing
PINS stock actually hit its 52-week low following the announcement of the company’s third-quarter results on Nov. 4, although shares closed 5.9% higher on the day.
Pinterest delivered better-than-expected revenue and earnings despite a decline in its monthly user base. Revenue rose nearly 43% from a year ago to $633 million. Adjusted earnings per share of 28 cents easily beat the 23 cents analysts were calling for.
However, Pinterest’s monthly active users fell short of expectations, coming in at 444 million versus an expected 460 million. This was the second quarter in a row Pinterest saw its MAUs decline.
Yet, the company still managed to post strong revenue growth for the quarter thanks in part to the fact that it was able to generate more revenue from each user. The average revenue per user in Q3 was up 37% from a year ago.
As long as the company continues to generate more revenue per user, it should be able to grow total revenue even as its user base plateaus.
Analysts Lower Their Price Target for PINS Stock
It’s safe to say that Wall Street’s expectations going into the earnings report weren’t overly optimistic. And a number of analysts have lowered their price target on PINS stock since the announcement:
- Piper Sandler’s Thomas Champion lowered his price target to $58 from $68, keeping a “neutral” rating
- Barclays’ Ross Sandler dropped his price target to $50 from $61, keeping an “equal weight” rating
- DA Davidson’s Tom Forte cut his price target to $45 from $76, keeping a “neutral” rating
While this may seem like a negative, I think analysts are simply becoming more realistic about what a post-pandemic world means for Pinterest.
According to TipRanks, the average 12-month analyst price target for PINS stock is now $58, which is still more than 26% above the current price.
The Bottom Line on PINS Stock
Investors need to stop looking at Pinterest as a pure pandemic play. Fewer people are using the app than we saw during the depths of the COVID-19 lockdown, but that does not make the platform worthless.
While users are on the decline, the company has managed to post impressive revenue growth. And Pinterest is still used by hundreds of millions of people, which means hundreds of millions of sets of eyeballs for advertisers. I suspect these advertisers and investors will also be closely watching to see how Pinterest TV performs.
All in all, Pinterest is a good company with strong fundamentals and solid long-term potential. Now is the time to enter 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.
