Pinterest (NYSE:PINS), a social media and visual discovery platform that provides daily inspiration to our lives made an impressive rebound in 2021, turning to profitable after four consecutive years of losses. This was great news for investors, but PINS stock has since been declining in 2022 in tandem with broader negative investor sentiment.
In fact, Pinterest stock is down more than 30% year-to-date. Given its lackluster performance, some investors might question if PINS is still buy. However, the company is starting to show enough long-term promise that I think investors should keep it on their radar.
Notably, Pinterest may have already hit an inflection point, as it becoming a profitable company shows maturity and is a milestone worth paying attention to. With all of that in mind, here’s a closer look at what you might expect from PINS stock moving forward.
PINS Stock Features Strong Fundamentals
The Q4 FY21 results showed a decline in monthly active users (MAUs) but an increase in average revenue per user (ARPU). At the end of the day, its total revenue was still higher.
Specifically, Pinterest reported for Q4 2021 a 20% year-over-increase in revenue to $847 million with 76.50% of it attributed to the U.S. market and the rest to its international market. For this quarter, international revenue grew 61% year-over-year versus only 11% for the United States. Interestingly, there is a strong trend forming here as for the full-year 2021, Unites States revenue contributed 78.20% to total annual revenue of $2.5 billion, and international revenue increased 110% versus a 41% increase for the United States revenue.
Total annual revenue growth of 52% was impressive and surpassed the 48.12% growth in 2020. It seems that Pinterest has found a way to build solid sales growth which bodes well for the stock price.
The MAU figures create doubts about sustainability, as increased competition from other social platforms like TikTok have been giving Pinterest a headache. MAUs declined 6% in 2021 with a decline of 12% for United States users and a decline of 4% for international users.
However, I see a lot of growth opportunities in the international audience for two reasons. First, they consist of most of the audience for Pinterest, 80.3% in 2021. Second, the ARPU of the international audience for 2021 was $1.59 versus $21.98 for United States users. This is a huge gap to fill. If Pinterest can close it, it would lead to a surge in revenue for Pinterest.
Pinterest also has a very strong balance sheet with a debt-to-equity ratio of only 0.07x as of the latest quarter.
Bottom Line on Pinterest
At the end of 2021, Pinterest had $2.48 billion of cash and short-term investments on its balance sheet or a cash-to-debt ratio of 9.89x, which is very healthy. Likewise, a net income of $316.44 million in 2021 after a series of net losses for the period ranging from 2017 to 2020 is a game-changer. Free cash flow surged 6,410.95% in 2021 to $744 million.
However, moving forward, prospective PINS stock investors should still be warry of the stock’s valuation.
PINS stock is expensive based on its price-to-earnings ratio of 46.5x. Compare that to the U.S. Interactive Media and Services industry average, which is 16.5x.
It is also expensive based on its price-to-book ratio (4.8x) compared to the U.S. Interactive Media and Services industry average (2.2x) and based on its price/earnings-to-growth ratio ratio (2x).
For 2022, the visual discovery platform will focus on several goals. Scaling Idea Pins will help creators add more content. The company plans to focus on improving its shopping experience and the efficiency of its advertising marketplace. There is also justified optimism that engagement will improve too.
If 2021 was a year of radical improvement for the financial performance of Pinterest, in 2022 we should expect even more. The valuation is not that appealing now, but fundamentals have been moving in the right direction. If Pinterest achieves its strategic goals, then PINS stock could perform well in the rest of 2022.
For now, just wait for upcoming quarters to confirm the quarterly net income continues to rise.
On the date of publication, Stavros Georgiadis, CFA 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.
