What Happened to Pinterest’s Stock Price Today?
- Pinterest (NYSE:PINS) stock dropped more than 10% on Wednesday after the social media company reported first-quarter numbers that smashed expectations.
- The problem? Management issued a weak Q2 guide that called for user growth to slow dramatically over the next few months.
Pinterest Earnings: Q1 Numbers Killed, User Growth Not So Much
- Pinterest’s first-quarter numbers were great.
- Users rose 30%. ARPU rose 35%. Revenues rose 78%. Gross margins expanded 880 basis points. The expense rate compressed 31 percentage points. Adjusted EBITDA margins expanded a jaw-dropping 37 percentage points.
- But management said that since mid-March, the platform’s user growth rate has slowed significantly.
- What has also happened since mid-March? The world has normalized, and consumers have started to go outside.
- Management expects this consumer behavior normalization to act as a headwind for user growth over the next few months, and is actually guiding for the platform to add just a few million new users in Q2, versus 19 million new users in Q1.
- PINS stock dropped big on that news, because user growth is the centerpiece of a social media company’s growth narrative.
How It Affects PINS Stock Holders
- We aren’t concerned about PINS stock at all, because we think that slowing user growth is ephemeral and that, while it lasts, it will be offset by accelerating ARPU growth.
- Pinterest is a social commerce platform with a wide array of durable value props that, yes, were exceptionally valuable during the pandemic, but will remain very valuable after the pandemic leaves, too.
- People are still going to remodel their homes. They are still going to look for new outfits to wear, find inspiration for where to go on vacation, seek new workout routines, and share cooking recipes. Pinterest is the place to do all of those things.
- Plus, Pinterest is adding multiple new features — like Story Pins, on-platform shopping, interactive videos, and Shopify integrations — which are collectively drawing in more and more Gen Z users. This is a cohort that Pinterest has failed to meaningfully crack yet but which, if Pinterest does crack, will provide a long runway for user growth over the next few years.
- We expect the current slowdown in user growth to be ephemeral. It will pass. Soon. By summer, Pinterest will be back to adding 10+ million new users every quarter.
- While this slowdown does last, it will be offset by healthy ARPU growth.
- The whole reason why Pinterest is seeing slower user growth — consumers are going out and being more active in the real economy — is a major tailwind for advertising. The more consumers spend on products and services, the more advertisers spend on advertising those products and services.
- A major rebound in ad spending will result in huge ARPU growth for Pinterest that will more than offset slowing user growth.
- Look no further than the company’s second quarter 2021 revenue guide. While user growth is expected to rise at just a mid-teens rate year-over-year, revenue growth is expected to accelerate to 105%.
PINS Stock Price Forecast
- PINS stock is a great buy on the recent earnings dip.
- The reason the stock is falling — slow user growth — is a near-term headwind, and shares are dramatically undervalued.
- It’s no wonder that Morgan Stanley, KeyBanc, Wedbush, JPMorgan, Deutsche Bank, and Wells Fargo all reiterated “Buy” ratings on PINS stock after the earnings report.
- This near-term plunge will not last. Over the next few months, PINS stock will power toward $100.
Pinterest is one of my favorite growth stocks to buy for the long-term, that also doubles as a great reopening trade.
But it’s not the best growth stock to buy today.
Instead, the best growth stock to buy today is a company that reminds me of a young Amazon. Indeed, I think buying this stock today could be like buying AMZN stock back in 1997 — before it soared thousands of percent.
Which stock am I talking about?
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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