- Pinterest (PINS) shares are rising on better-than-expected Q1 2022 earnings.
- PINS stock has been battered in 2022, down 46% year-to-date.
- Buy under $20 and hold for the long term.
Pinterest’s (NYSE:PINS) demise has been greatly exaggerated. The visually-driven social media platform reported first quarter 2022 results that were much better than expected. PINS stock opened on April 28, trading up more than 11% on the news.
It has not been a good year for long-time Pinterest shareholders. Despite the 11% boost, its share price is down more than 46% year-to-date (YTD) and 70% over the past 52 weeks.
When a stock I like tanks, I’m the first to reassess why I liked it in the first place and change my tune if the story has indeed worsened. In mid-March, PINS was trading slightly above its 52-week low. I suggested that its shares wouldn’t stay cheap for long.
Like clockwork, they fell below $20, hitting a new 52-week low of $18.32 on April 27, hours before Pinterest released its earnings after the close.
I feel Pinterest is a diamond in the rough that aggressive investors should pounce on for under $20. Here’s why.
| PINS | $20.78 |
PINS Stock and Earnings
Its adjusted earnings of 10 cents per share were 6 cents better than analyst estimates, while its Q1 2022 revenue of $575 million beat the consensus by $2 million. The latter number is hardly a beat, but the former more than makes up for it. That’s a significant beat.
It wasn’t a perfect report. Monthly active users (MAUs) decreased 9% compared to last year to 433 million. However, it was two million higher than fourth quarter 2021, so it appears, at least for now, that the MAU losses have stopped. That’s excellent news.
Further, the average revenue per user (ARPU) was $1.33, 28% higher than Q1 2021 and 2 cents better than the consensus estimate. And even though it’s facing plenty of headwinds to growing advertising revenues due to the war in Ukraine, it’s doing enough to remain excited about its growth opportunities.
In my March article, I focused on two things: Its international MAUs — they’ve got to become a more significant part of its overall revenue — and U.S. MAUs need to return to growth. The initiatives announced at its advertising summit in March, such as “Your Shop,” ought to do the trick.
What Lies Ahead?
As I stated above, initiatives such as Your Shop will continue to drive revenue at Pinterest. Here’s what the company had to say about Your Shop in its Q1 2022 shareholder letter:
We’re on the path to making shopping on Pinterest more personalized with the beta test of Your Shop in Q1, a customized shopping page powered by our taste-driven algorithm informed by Pinners’ unique preferences and styles.
Your Shop is currently being tested with a portion of our U.S. Pinners with plans to launch more broadly later this year. Finally, we continue testing our seamless checkout experience with more merchants.
All good things take time.
As of this latest quarter, the company has gone from U.S. ARPU and International ARPU to U.S. and Canada ARPU, Europe ARPU, and the Rest of World ARPU.
So, in Q1 2021, U.S. ARPU was $3.99, and International ARPU was $0.26. In Q1 2022, the U.S. and Canada’s ARPU was $4.98, 31% higher year-over-year, Europe’s ARPU was $0.72, 40% higher YOY, and the Rest of World’s ARPU was $0.08, 164% higher YOY.
In Q1 2022, MAUs outside Canada and the U.S. accounted for 78% of the total but only 18% of the revenue. To put this in perspective, Canada’s 9 million MAUs generated approximately $24 million in revenue. By comparison, the 220 million MAUs in the rest of the world generated $7 million less revenue than Canada despite having 24x more MAUs.
The opportunity outside North America is tremendous.
Why You Should Buy PINS Stock for Under $20
As stated in its shareholder letter, Pinterest expects its non-GAAP operating expenses in 2022 to increase by 35-40% over 2021. In 2021, they were $1.72 billion [$2.25 billion less $529.3 million for cost of revenue]. A 40% increase suggests they will be $2.41 billion in 2022. In 2021, revenue grew 52%. Assuming revenues grow by 30% in 2022, they’ll be $3.35 billion.
Now, in 2021, it had almost 80% gross margins. If we keep that for 2022, its gross profit will be $2.68 billion. Subtract $2.41 billion in operating expenses, and we’re left with an operating profit of $270 million.
While that’s down from $326 million in 2021, it’s important to remember that the company’s investments in 2022 will pay off for years to come.
Given all of the initiatives it’s investing in 2022, buying under $20 is an excellent risk-to-reward proposition. Barring the economy going into recession, there doesn’t appear to be a lot of downside to making this bet.
PINS stock is a long-term buy under $20.
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.
