Pinterest (NYSE:PINS) delivered excellent Q4 and fiscal 2021 earnings in early February, causing shares to pop 11.5% in a single day. Yet, PINS stock has given back most of those gains over the past month, with shares just 1.7% higher than they were before the announcement.
This makes me wonder if Pinterest management has lost investor engagement with the company’s story and stock.
However, anyone willing to look at the big picture ought to be able to see that Pinterest is actually in a much better place despite its shares losing 64% of their value over the past year.
PINS Stock Is Being Unfairly Punished
Considering the significant one-year loss in its market capitalization, you would think that Pinterest was delivering terrible results. On the contrary, its business is stronger than ever.
Below is a comparison of the company’s major financial and productivity metrics over a five-year period.
Pinterest’s Business Performance – 2017 to 2021
| Metric | 2017 | 2021 | Difference | Increase (%) |
| FY Revenue | $472.9 million | 2.58 billion | $2.11 billion | 446% |
| FY U.S. Revenue | $443.8 million | $2 billion | $1.56 billion | 351% |
| FY International Revenue | $29 million | $574.4 million | $545.4 million | 1,881% |
| Q4 Monthly Active Users (MAUs) | 216 million | 431 million | 215 million | 100% |
| Q4 Average Revenue Per User | $0.83 | $1.93 | $1.10 | 133% |
| FY Operating Profit/Loss | -$137.9 million | $326.2 million | $464.1 million | 337% |
Detractors will say MAUs aren’t growing fast enough, noting the 6% year-over-year decline in the fourth quarter of 2021. Or they’ll point to Q4’s 20% revenue growth as proof positive Pinterest’s business is decelerating.
The thing about stats is that people can make them dance however they want them to, often obscuring the bigger picture. For example, while overall fourth-quarter revenue grew by 20% year over year, international revenue jumped 61% to $199 million. For all of 2021, international sales rose by 110% to $562 million.
There are two ways you could look at these figures. The first way is that fourth-quarter international revenue grew 49 percentage points less than the growth for the entire fiscal year (61% versus 110%). The second way to view it is that international revenue accounted for 23.5% of total revenue in the fourth quarter, up from 21.8% for all of 2021. Further, its Q4 2021 contribution of 23.5% was 610 basis points higher than Q4 2020.
In 2021, Pinterest’s international ARPU was $1.59, 80% higher than in 2020. But, similar to Netflix (NASDAQ:NFLX), Pinterest’s U.S. business is far more lucrative than its international business, with U.S. ARPU of $21.98 for 2021.
That’s why many investors have been fixated on the American gravy train coming to an end when, in fact, they ought to focus on the future international potential. Just imagine what a $10 international ARPU would do for revenue and profits. PINS stock wouldn’t trade for less than $25 a share, that’s for darn sure.
What’s Working for Pinterest
Pinterest CEO Ben Silbermann addressed the MAU growth slowdown head-on in his Q4 2021 shareholder letter. Rather than make up some lame excuse such as weather (retailers love that one), Silbermann admitted that several use cases of Pinterest revolving around in-home activities were lower as the world reopened and more people went outside.
However, his comments about mobile are helpful in the context of what’s working for Pinterest:
MAUs using our mobile apps (who account for a significant majority of our impressions and ad revenue) continued to show relative strength versus total MAUs. During Q4, global mobile app MAUs grew by mid single-digit percentages year over year. Furthermore, year-over-year growth in our global Gen Z cohort grew. Furthermore, year-over-year growth in our global Gen Z cohort grew high single digits in Q4.
In 2021, Pinterest spent the year building a lifestyle publishing platform that content creators can use to fully engage users, leading to a situation where content creators, users and advertisers all win.
“Our aspiration is to build an end-to-end platform that gives people great inspiration and the tools to buy, to make and to do those ideas for their lives, all in the space that’s both positive and encouraging,” Silbermann said on the company’s Q4 earnings call. “We believe that the world needs this and that’s why we’re increasing our investment to build it and I’m confident that our team is up to the task.”
Pinterest has spent $2.6 billion on research and development over the past three fiscal years. That’s 48% of its sales between 2019 and 2021. How many businesses do you know of that spend this much on R&D? Not many. And I bet that the spending will pay off.
The Bottom Line on PINS Stock
By almost any valuation metric, PINS stock is cheaper than it’s ever been. It currently trades at 6.9x sales, down 29.6x in 2020. And its price/earnings-to-growth (PEG) ratio is 0.74.
Currently, 13 analysts rate it a “buy,” while 17 consider it a “hold” and one analyst has an outright “sell” on PINS stock. The average target price is $39.88, which represents 60% upside.
If you look at the big picture, I think you’ll find that Pinterest’s business is doing just fine. At some point, investors will realize this and get back on board. Your patience will be rewarded.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
