It’s been just over a month since Pinterest (NYSE:PINS) shareholders reeled from a near-record drop in PINS stock. After reporting a sharp decline in active users for its second quarter, PINS plummeted by over 18%.
Currently trading around $54, Pinterest shares have slid even further since then. In fact, the stock is down 17% for 2021. That’s a far cry from 2020, when the pandemic drove user growth and PINS stock posted an impressive 254% return.
With shares performing so poorly, there is an opportunity here to pick up this Portfolio Grader “B” rated stock at a discount. However, doing so requires making the assumption that the market reaction to Pinterest’s active user numbers are an over-reaction. It also assumes that Pinterest shares are in a position to deliver long-term growth.
Based on what shares have done so far in 2021, you might be inclined to skip PINS stock, but I still think this is an investment that is going to pay off handsomely over the long term.
Why the Panic at the End of July?
The story of what’s happened to PINS stock over the past month dates back to July 30. The company reported its second-quarter earnings. Revenue was up 125% year-over-year. Global monthly active users (MAUs) grew by 9%. Adjusted earnings per share handily beat forecasts, at 25 cents.
So why did the market react so negatively to those numbers? The problem is what Pinterest describes as “engagement headwinds.” With people beginning to venture back to the office and spending more time outdoors, they aren’t spending as much time online as they did during lockdowns. As a result, MAU numbers failed to meet expectations. For the quarter, MAUs in the U.S. dropped 5% YoY. Additionally, the company noted that as of July 27, that American MAU had hit a 7% decline.
The prospect of U.S. users losing interest in Pinterest had analysts deeply concerned, and PINS stock was punished as a result.
However, that reaction didn’t necessarily take the bigger picture into account. The decline in MAUs is a U.S. issue. International MAUs were up 13% in the quarter. In addition, the average revenue per user (ARPU) improved significantly. ARPU for the U.S. was up 103% for the quarter, while ARPU for international markets grew 163%.
Pinterest Is Delivering on Monetization Promise
Pinterest has always shown promise when it comes to tying image sharing to retail purchases. Back in 2013, Harvard Business Review published an article on the company, noting:
Pinterest is an especially popular driver of in-store sales: 21% of the Pinterest users we surveyed said that they bought an item in-store after pinning, repinning, or liking it, and 36% of users under 35 said they had done so.
Retailers took note of this relationship.
The company has continually leveraged its position, inking deals with leading e-commerce sites and vendors. Each of these deals helps to drive up that ARPU. Pinterest is suffering engagement headwinds as Americans spend less time online after lockdown – that’s completely predictable. People aren’t fleeing the platform, they’re using it less or putting down the laptop temporarily. In much of the world MAUs continue to grow. And because the company has been so successful at monetizing its platform, revenue can increase meaningfully despite a slip in MAU numbers.
Bottom Line on PINS Stock
At the end of the day, is PINS stock a buy? On the surface, a 254% return in 2020 followed by a loss of 17% at this point in 2021 doesn’t paint a compelling picture. Investment analysts are mixed, with most waiting to see what happens next. There are InvestorPlace contributors making compelling arguments for PINS having significant upside. Others argue you should hold off and wait for the stock to bottom out.
Only time will tell who is right. However, I believe Pinterest is a strong company that has done an excellent job of monetizing its platform. Remember, revenue in Q2 grew 125% YoY compared to 2020 – which was an historic year for the company. It’s possible that PINS stock may slip a little lower, but it’s just as likely that a rally is just around the corner. If you’re looking at PINS a long-term growth investment, it’s really a question of whether to snap up shares now while they’re still near their 2021 low, or waiting in hope that they slip further.
On the date of publication, Louis Navellier had a long position in PINS. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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