Ignore the Bearish Noise and Place Your Bet On Pinterest

Social media giant Pinterest (NYSE:PINS) has had an incredibly tough outing at the stock market in the past year. PINS stock slid over 60% in the past 12-months.

the pinterest (PINS stock) logo on a mobile phone held by a woman
Source: Nopparat Khokthong / Shutterstock.com

Apart from the market sell-off in tech, investors are concerned about the slowdown in its marginal active user (MAU) growth. However, its fourth-quarter report suggests that its MAUs are bottoming out and likely for a rebound.

Pinterest is one of the more unique social media platforms where users usually come with commercial intent.

It is due to its robust native advertising model, which shows the products consumers desire the most without being meddlesome. Brands are much safer on the platform from being associated with unwarranted topics.

Over the years, its business has done exceptionally well, but the slowdown in MAUs and its transformation has investors concerned. However, these apprehensions are overblown, and Pinterest is likely to deliver the goods in the long run.

Fourth-Quarter Numbers

Pinterest recently reported its much-anticipated fourth-quarter results, which comfortably beat consensus estimates. Revenues for the quarter came in at a healthy $847 million, a 20% bump on a year-over-year basis. Moreover, its earnings per share (EPS) beat estimates by 9%.

Total revenue of $2.58 billion for the year rose over 50% from 2020, led by its robust international revenue expansion. Additionally, it posted its first-ever positive net income at $316 million for the year.

Most of the bearish arguments have centered on Pinterest’s sluggish MAU growth. The fourth quarter was no different as Global MAUs dropped to $431 million, a 3% sequential decline and 6% on a year-over-year basis. The dip mainly relates to domestic users, where revenues declined by 12% from the prior-year period.

Tough comps have a lot to do with how investors perceive MAU growth’s slowdown. Moreover, the company CFO Todd Morgenfeld talked about how the algorithm change with Google impacted domestic MAU growth. The Google search engine regularly updates its algorithm, affecting website rankings and other related aspects.

According to Morgenfeld, Pinterest’s teams were “working diligently to understand this, but it may take some time.” However, it appears that a rebound is already happening, as the company’s February MAUs, represent a considerable improvement from the fourth quarter.

Strong Outlook Ahead

With its native advertising model, Pinterest has cemented its niche in the colossal advertising industry. The sector is worth over $750 billion, and Pinterest generated $2.6 billion in revenues this year, which points to massive upside potential.

The platform has evolved from purely a search and discovery site to an eCommerce site a few years ago. With its introduction of Buyable Pins, users can effectively checkout on the platform without going to the seller’s website.

The company has done exceedingly well in developing a differentiated experience compared with other top eCommerce players. Moreover, it’s gotten remarkably active with some of the latest trends, such as video.

On top of that, the platform has developed an in-house innovation lab to experiment with different ideas. Its innovation team is called TwoTwenty and was established last year to foster a more bottom-up approach towards innovation.

The Bottom Line

Pinterest’s fourth-quarter results were a step in the right direction, giving plenty of assurance to its investors. Though its MAUs declined again during the quarter, the reasons for the drop are well-taken. Moreover, PINS stock’s battering at the stock market has made it remarkably attractive.

It currently trades at 7.07 time’s forward sales, which is more than 80%, lower than its 5-year average. Hence, PINS stock remains an enticing long-term bet for the long-term.

On the date of publication, Muslim Farooque 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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.


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