Pinterest (PINS, Financial) is the 14th largest social media network in the world and has a platform designed to inspire, engage and enable a visual shopping experience. It was a leading beneficiary of the “stay at home” environment during the beginning of the pandemic, as people searched for home decor and baking ideas on the platform.
The company recently caught my attention when it reported its earnings results for the first quarter of 2022. Revenue jumped, earnings jumped and so did their share price, showing a slight pop after more than a year of corrections from Covid-bubble highs.
In 2021, the stock may have suffered from high inflation, rising interest rates and a growth stock correction, but I believe that after the earnings and revenue beats in the first quarter, the stock could be set for recovery. Here's why.
Business model
Pinterest is the 14th largest social network in the world and has 433 million monthly active users according to its first-quarter results, which is very similar to Twitter (TWTR, Financial). The company had a major user boost during the lockdowns of 2020, but MAUs declined by 9% year-over-year in the recent quarter.
The Pinterest platform caters to a majority female (60%) demographic who are looking to be inspired and get ideas in areas such as home decor, baking, travel , fashion, art and much more. Users do this by searching on the platform and “Pinning” different images or video pins to their own or others boards. I personally believe the platform is better characterized as a “visual search engine” as opposed to a social network.
Pinterest is also a place of positivity with 8 out of 10 users saying the platform makes them feel positive. Eighty-five percent of Pinners also use Pinterest to plan new projects, and the platform generally caters to those early in their buyer journey.
Pinterest recently launched an augmented reality (AR) Try-ON feature for home decor, which enables users to use the Pinterest camera to see a graphical representation of furniture in their own living space, through the power of augmented reality. The Try-ON feature is also useful for purchase of cosmetics like lipstick, eyeshadow, etc. According to Pinterest, users are five times more likely to purchase something if they can try it in AR. Searches for AR Try-ON pins were up a staggering 126% in 2021. Seventy-five percent of weekly Pinterest users say they are “always shopping” or “love shopping," which makes the platform enticing for advertisers. Pinterest's catalog uploads doubled globally in 2021, and in international markets they were up by over 400%.
In the first quarter, the company highlighted their video idea Pins had grown 15 times year-over-year and they look to further accelerate this through the acquisition of Vochi, a video editing app.
They also launched the Pinterest API for shopping, which allows product details pages to include real time pricing and product availability.
Pinterest is working on "Your Shop,” a personalized shopping page powered by a “taste driven” algorithm.
In addition, they have a WooCommerce partnership which enables a more seamless checkout experience. I personally believe these are all smart moves by the platform and this could increase their average revenue per user substantially.
Earnings wins
In Pinterest's first quarter earnings results for 2022, they reported that they beat revenue and EPS estimates even though user growth declined. Revenue was $575 million vs. $573 million expected, while earnings per share were 10 cents on an adjusted basis vs. 4 cents expected.
Global active users decreased by 9% to 433 million from the same period one year ago. The decline in users is not a surprise as the company saw tremendous growth in 2020. Global average revenue per user (ARPU) was $1.33, up 28% from the prior year and above Wall Street estimates of $1.31. The company’s GAAP net losses narrowed to $5 million in the first quarter, down from $22 million in the prior-year quarter. Adjusted Ebitda came in at $77 million..
Valuation
In terms of valuation, the GF Value chart, a unique intrinsic value estimate from GuruFocus, rates the stock as significantly undervalued after the major pullback.
The company’s price-sales ratio is also the lowest since the pandemic lows of March 2020 at just 5.3.
The stock trades at one of the lowest price-sales ratios compared to other social media companies such as Snap (SNAP, Financial), Meta (FB, Financial) and Twitter. Only Meta's is lower, but you could argue that there's a good reason for that.
Overall, I believe the Pinterest platform is unique in terms of its style, and I personally consider them to be in their own niche of a "visual search engine,” giving this platorm major potential to expand their e-commerce offering for advertisers. This could lead to a major boost in revenue per user and even a possible acquisition from a struggling tech giant. This company is definitely one to watch.
