Last week, Pinterest (NYSE:PINS) reported blowout fourth-quarter numbers, which broadly underscored that this social media company is turning into a must-have app for consumers and a must-use advertising platform for brands. It should be no surprise, then, that PINS stock surged to fresh all-time highs after the print.
But, what is surprising is that this is just the beginning of the big rally in PINS stock.
Yes. I know Pinterest stock has soared from $10 to $80 over the past eleven months. That’s an enormous rally. From a price action perspective, some investors may think that the best has already happened.
But, from a fundamental perspective, the best is yet to come for Pinterest. This company is still in the early stages of expanding its global reach and ramping up its advertising platform. As the company adds tons of new users and advertisers over the next several years, Pinterest’s revenues and profits will continue to soar. And, as that happens, PINS stock will keep pushing higher.
How much higher?
My numbers say that Pinterest stock will soar to $200 in the long run.
Here’s a deeper look.
Pinterest’s Blowout Earnings
From head to toe, Pinterest’s fourth quarter numbers were strong.
Monthly active users rose 37% in the quarter, consistent with Covid-19 trends in Q2 (MAUs +39%) and in Q3 (+37%). At the same time, ARPU growth dramatically accelerated to 29% in the quarter (up from 14% in Q3). That marks the company’s best ARPU growth rate since the third quarter of 2018.
This combination of multi-quarter-high user growth and multi-quarter-high unit revenue growth sparked 76% revenue growth for Pinterest in Q4 — the company’s single-best revenue growth rate since becoming a public company.
This rapid revenue growth drove huge margin expansion through economies of scale inherent to Pinterest’s highly scalable digital ad business model.
Gross margins rose six points in the quarter to a very-high 82%. The opex rate dropped about 20 points to around 40%. Adjusted EBITDA margins boomed to 42%.
There’s really no other way to put it. Those numbers are great. Huge user growth. Huge ARPU growth. Record revenue growth. Enormous margin expansion to the some of the highest profit margin levels in the industry.
Put it all together, and it’s no wonder PINS stock popped to all-time highs.
Still Early Days
The best thing about Pinterest? The company is still in the first few innings of its growth.
Pinterest closed the year with 459 million MAUs. Many of the world’s largest social media platforms have over a billion MAUs. Pinterest — given its value prop as a visual discovery engine in a visual-focused world — is on track to reach that level of ubiquity.
Meanwhile, the company’s ARPU in the quarter was $1.57. Many more established social media platforms net ARPU rates north of $10. Pinterest — given its intention-driven user base and shoppable features — is also on track to hit those ARPU levels (if not higher).
Thus, Pinterest still a long ways to go in terms of growing its user base and how much money it makes from each of those users. Revenue growth will remain robust for a lot longer. Such robust revenue growth will drive positive operating leverage through economies of scale. Margins will keep powering higher. So will profits.
That’s a winning recipe for PINS stock.
Pinterest Stock to $200?
My numbers say that PINS stock is on track to hit $200 in the long run.
Pinterest’s user base will top a billion users by 2030. At the same time, annual ARPU rates should climb to about $20, thanks to the company’s strong ad conversion rates. Putting those two together, Pinterest is a $20-plus billion revenue business in the making.
Operating margins have the potential to land north of 40%. Assuming so, my modeling suggests that Pinterest will do about $10 in earnings per share by 2030.
Based on a 20X forward earnings multiple, that implies a long-term price target for PINS stock of $200.
Bottom Line on PINS Stock
Pinterest is firing on all cylinders today. That’s the good news. The better news? This growth story is just getting started, because the company still has a long ways to go in terms of growing its user base and ramping its ad platform.
Consequently, this big rally in PINS stock is far from over. If anything, it’s just getting started.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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