- Pinterest (PINS) stock was downgraded from overweight to equal weight
- User attention is down yet this could be a result of lockdowns lifting
- Idea Pins is TikTok with a Pinterest twist thus staving off competition from short-video
As a technology company, Pinterest’s stock (NASDAQ:PINS) stock has been on the receiving end of market turmoil these past few weeks. PINS stock has been trading at a high of $83 in mid-2021. It has since gone on a long and painful slide to its current price of around $23.
The market sentiment has turned so negative that there are now investors doubting the long-term growth potential of the company. PINS stock was recently hit by a downgrade by Morgan Stanley only further dunking on its prospects.
The analyst cited “too much uncertainty” from too many headwinds. The stock was downgraded from $53 and an overweight rating to $30 with an equal weight rating. At face value, this downgrade isn’t so bad. After all most tech stocks have been slaughtered in this market environment. However, in this article, I will examine the points raised.
| PINS | $22.68 |
Temporary Shift Away From Social Media
It’s easy to dismiss this analyst report as Wall Street being late again. After all, a downgrade of PINS stock would have been much more useful a few months ago than today. However, there are a few notes the analyst made about the Pinterest platform that for me could be a cause for concern.
The first issue is that user and time spent trends are much lower and are now at 2017 levels. This is lower than they have been previously. Yet I wonder how much of this is a temporary shift of habits due to the coronavirus pandemic. As you know during the pandemic lockdowns, majority of people had to spend most of their time online. This caused a boom in internet-related stocks.
We could now be seeing a temporary shift back to the “real world” now that lockdowns have been lifted. As you know the lifeblood of any Social Media site is user attention. If this continues to fall then PINS stock could be in legitimate trouble. The next few quarters will be crucial in order to properly gauge and monitor usage trends in the platform.
Pinterest Uses Video to Stave off Competition
The other main issue analyst Brian Nowak pointed out was the increased competition from Facebook (NASDAQ:FB). Right now the battle for attention and eyeballs is mostly focused on the video capabilities of Social Media platforms. Think about the success of TikTok and how Facebook and other sites have recently begun to play catch up.
Pinterest is even further behind and risks sliding into being “old news”. It has only recently adopted the short video format. The company launched “Idea Pins” mid last year. The feature gives creators tools like voiceover recording, background music, transitions, etc to tell their stories in a short video format. It’s a spin on TikTok with a Pinterest twist but it isn’t totally unique.
While this could work in the long run, I expect PINS stock to possibly take a hit in the short term. Brian Nowak has pointed out that short-form video is monetized at a lower rate. According to Novak, “Bringing in revenue could be slow given the high competition the company faces from other social media apps.”
Your Takeaway
What could make Idea Pins work is its unique target audience. Pinterest has typically been used as a place where people can get and store ideas. Creators could use Idea Pins specifically to cook a new recipe or DIY a project of some sort. This should prove to be a unique enough user proposition for Pinterest’s foray into video.
Ultimately it’s still too early to see whether or not engagement in the Pinterest platform has truly waned. The points raised are valid concerns and should be carefully watched.
However, I still believe in the long-term promise of PINS stock.
On the date of publication, Joseph Nograles 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.
