Investors in the visual search and social media platform Pinterest (NYSE:PINS) kicked off 2022 in a swirl of bearish sentiment. Since January, PINS stock has slipped more than 32%. By comparison, the Dow Jones U.S. Media Index and the Dow Jones Internet Composite Stock Index are down 28.4% and 24.9% year-to-date (YTD).
Meanwhile, peers of PINS stock have also shown poor performance so far in 2022. Here is how some other social media and internet communications stocks have fared so far this year:
- Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG): down 7.2%
- Meta Platforms (NASDAQ:FB): down 38.9%
- Twitter (NYSE:TWTR): down 14%
- Snap (NYSE:SNAP): down 28.4%
In March 2020, during the early days of the pandemic, PINS shares were changing hands for slightly more than $10. Currently, PINS stock is around $25, down more than 70% from the record high of $88.83 seen in April 2021.
Despite the recent decline in price, Pinterest bulls believe the platform stands out from its peers. It has transformed itself into a unique e-commerce destination, providing “organic content” to its users. As a result, the social media network has been constantly increasing its annual revenue.
Yet, given the current headwinds in broader markets, Pinterest shares are not likely to reach their all-time high above $80 in the near future. However, those who follow technical charts know a short-term bounce could be due soon. Investors with a two- to three-year horizon could consider buying PINS stock because of its fundamental valuation and growth prospects.
PINS Stock and Its Q4 Results
Founded in 2010, Pinterest is an online discovery platform. It enables users to share ideas such as recipes, do-it-yourself (DIY) projects, furniture and travel destinations.
Pinterest reported fourth-quarter earnings on Feb. 3. Revenue came in at $847 million, up 20% year-over-year (YOY). Non-GAAP net income was $339 million, or 49 cents per diluted share, compared to $294 million and 43 cents per diluted share in the prior-year quarter. Cash and equivalents ended the quarter at $1.4 billion, increasing $750 million from the year-ago period.
Despite these rosy financial results, global monthly active users (MAUs) narrowed 6% YOY to 431 million, representing the third consecutive quarter of shrinking user numbers. Yet the global average revenue per user (ARPU) was $1.93, up 23% compared to Q4 2020. In other words, the platform has fewer users, but is generating higher revenues.
“As we look ahead to 2022, we plan to further invest in our business as we scale the distribution of Idea Pins through our creator-led content efforts and enhance our core Pinner experience and shopping to make Pinterest the destination for inspiration and action on the internet,” remarked CEO Ben Silbermann on the results.
Before the release of its Q4 financials, PINS stock was around $24.50. The next day it surged more than 12%. However, the optimism proved short-lived, as it has returned to its pre-earnings level.
Adding Pinterest Stock to Portfolios
Among 33 analysts polled, PINS stock has an average “hold” rating. Also, the consensus of 26 analysts for a 12-month median price target stands around $39, representing an upside potential of roughly 57% from current levels. Meanwhile, the 12-month price estimates for the stock range between $20 and $53.
PINS shares trade at 7.1 times trailing sales and 5.7 times book value. The company’s forward price-to-earnings (P/E) ratio currently stands at 23.8x, implying a not-so-frothy valuation level for a growth name.
By comparison, Twitter and Snap are swapping hands at 38.8x and 119.1x forward earnings.
Although I remain bullish on PINS stock for the long run, the current pressure on growth stocks could lead to further volatility in the weeks ahead. In that case, we could see a potential pullback toward $20. But those investors who are not worried about short-term choppiness could consider investing now.
Interested readers could also consider investing in an exchange-traded fund (ETF) that also gives exposure to PINS stock, among others. Examples include the American Customer Satisfaction ETF (BATS:ACSI) and the Global X Social Media ETF (NASDAQ:SOCL).
The Bottom Line on PINS Stock
Over the last few months, Pinterest has taken aggressive measures to ramp up its content quality and attract more users. In addition, management has increased sales and marketing spending, focusing on monetization of international users.
With a market capitalization of $17.3 billion, Pinterest still has significant room for growth. Therefore, given the optimistic prospects, PINS stock is poised to generate enticing long-term returns for patient investors.
On the date of publication, Tezcan Gecgil 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.