With the economy reopening and people emerging from Covid-19 hibernation, it appears that the best days might now be over for Pinterest (NYSE:PINS).
The San Francisco-based social media company that enables people to share images and videos online thrived during the pandemic as housebound consumers looked to connect, share and be entertained online.
PINS stock climbed 261% higher in 2020 and hit an all-time high of $89.90 in February 2021. But since the winter, the company’s stock has deflated considerably, down 33% in the past six months to its current share price of $56.15. Shareholders who have held on might now want to consider taking their remaining profits and heading for the exit.
Downgrades Galore
One Wall Street analyst after another, from JPMorgan Chase (NYSE:JPM) to Evercore ISI (NYSE:EVR), has been downgrading PINS stock since the company reported disappointing second-quarter results and provided weak guidance for the current quarter.
Pinterest’s monthly active users within the U.S. fell by 5% year-over-year in Q2, and management said that it expected year-over-year Q3 revenue growth to be in the low-40% range. That compares to nearly 60% YOY revenue growth in Q3 of last year.
The analyst downgrades seem to confirm the widely held view that Pinterest cannot maintain the torrid pace of growth it enjoyed during the pandemic and that demand for its products and services is now on a permanent downward trend.
But there was some good news in the company’s Q2 earnings report. The number of international users of Pinterest rose 13% YOY, and the company’s revenue was up 125% YOY to $613 million. And, lost in the earnings kerfuffle was the fact that Pinterest turned profitable in this year’s first half, earning nearly $48 million between January and June.
However, analysts and investors seemed unconvinced by the numbers and chose to focus on the company’s slowing growth.
Diversification Efforts
To its credit, Pinterest is trying to expand and diversify its platform, finding new ways to enhance its value proposition and generate additional sources of revenue. The company has integrated its platform more closely with e-commerce, making it possible for users to buy things directly from images and boards, which should help drive future revenues.
Pinterest has also launched new tools for marketers, allowing them to automate their advertising campaigns and measure results more easily and efficiently.
Pinterest’s advertising business is growing. In Q2, the company’s ad revenue rose 125% from the year-ago period, and its international revenue surged 227% YOY, showing the growing strength of Pinterest’s brand outside the U.S. Going forward, the company plans to pilot new “on-platform transactions” that will reinforce Pinterest’s role as an e-commerce tool, enhancing its value to both companies that advertise on its platform and consumers who shop there.
If it succeeds, Pinterest could become a more dominant force in online shopping.
Wait For PINS Stock to Bottom
What Pinterest stock needs now is to find a bottom. The company’s share price has been in freefall since March. While Pinterest may ultimately prove to be a great social media and e-commerce company over the long-term, in the near-term investors have soured on PINS stock. Right now, it looks like nothing the company does will convince investors to take a chance on its shares.
In such a negative environment, taking a position in Pinterest stock would be akin to trying to catch a falling knife. It’s better to wait for the shares to hit bottom and begin recovering before risking money on this security. So pass on PINS stock for now.
Disclosure: On the date of publication, Joel Baglole 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.
