pins analysis

Shares of Pinterest Inc. (NYSE: PINS) stayed in green territory on Monday. The stock has dropped 40% year-to-date and 62% in the past 12 months. There is a mixed sentiment around the stock as the pandemic-driven spike in engagement continues to wane impacting Pinterest’s user growth raising concerns over its future growth trajectory. However, some experts believe the company has significant potential to expand and grow in international markets. Here are a few points to note while considering this stock:

Revenue

In the first quarter of 2022, Pinterest’s revenue increased 18% year-over-year to $575 million, driven by strength in advertising and growth in international markets. Although the revenue growth rate was much lower than the 78% seen in the year-ago period, the company managed to grow the top line in a challenging macro environment amid supply chain issues and the Russia-Ukraine conflict.

Pinterest saw revenue growth across all its regions as well with US and Canada posting a 15% growth and Europe posting a 27% growth YoY driven by increases in average revenue per user (ARPU). Revenue in the US was up 14%. Rest of World revenue more than doubled YoY, fueled by triple-digit growth in ARPU. Global ARPU increased 28% YoY to $1.33, driven by advertising demand. ARPU grew 31% in US and Canada and 40% in Europe. Rest of World ARPU grew 164%.

For the second quarter of 2022, Pinterest expects revenue to grow around 11% YoY. This compares to a revenue growth of 125% in Q2 2021. The company believes it will continue to face headwinds such as supply chain issues and inflation. On its quarterly conference call, Pinterest said its investment in building a native content ecosystem is likely to remain a mid-single digit headwind to revenue but it believes this effort will be accretive to revenue and engagement over time.

User growth and engagement

Pinterest’s declining user numbers are a prime cause of concern. Global monthly active users (MAUs) were down 9% YoY to 433 million in Q1 2022 as the pandemic-fueled boom subsided. MAUs were also impacted by lower search traffic caused by Google’s algorithm change last November. Pinterest saw MAUs decline across all its regions. US and Canada MAUs were down 13% while Europe MAUs fell 12% YoY. Rest of World MAUs dropped 6%.

Despite these declines, in Q1, Pinterest witnessed a mid-single digit growth in its global mobile app MAUs, which account for a vast portion of its impressions and revenue. The company also witnessed resilience in its shopping engagement as the number of Pinners engaging in shopping surfaces grew compared to last year.

Pinterest is working on driving user acquisition and retention by removing barriers to longer browsing sessions. The company now does not ask users to sign up immediately when they land on the site. Despite slight negative impacts on new user sign-ups initially, Pinterest believes these efforts can drive activations over time.

Looking ahead, in Q2, Pinterest expects to face seasonal impacts as well as headwinds from the search algorithm change along with potential challenges from future search algorithm updates. Additionally, the company believes the pandemic unwind will no longer cause a headwind to MAUs in the third quarter of this year.

International opportunity

Several experts believe that Pinterest has substantial opportunity to expand and grow in international markets. Despite a decline in users, revenues in the Rest of World region grew 152% YoY to $17 million. ARPU rose 164% to $0.08. Although this is much lower compared to ARPU of $4.98 in the US and Canada, there appears to be significant room for expansion in these markets presenting the company with further growth opportunity over the long term.

Click here to read the full transcript of Pinterest’s Q1 2022 earnings conference call

Shares of Pinterest Inc. (NYSE: PINS) were down 3% on Monday. The stock has dropped 38% year-to-date and 69% over the past 12 months. While the general sentiment around the stock is rather pessimistic, not all are willing to give up on it. Here are a few points to keep in mind if this stock is on your radar:

Pros

Pinterest’s revenue for the fourth quarter of 2021 grew 20% year-over-year to $847 million and surpassed market expectations. The top line growth was driven by strong demand from retail advertisers. Revenues in the US grew 11% while international revenue rose 61% YoY, driven by growth in average revenue per user (ARPU). The company managed to grow revenue despite a decline in users.

Global ARPU grew 23% YoY to $1.93, driven mainly by advertising demand. US ARPU increased 25% YoY to $7.43 while international ARPU rose 62% to $0.57. The company is working on expanding its advertiser base in regions outside the US. It is also rolling out its shopping feature in international markets and believes there is scope for meaningful growth here. In Q4, catalog uploads were up over 400% YoY in international markets.

On an adjusted basis, earnings were up 15% YoY to $339 million, or $0.49 per share. Looking ahead, the company expects revenue in the first quarter of 2022 to grow in the high teens percentage range year-over-year.

Cons

The biggest cause of concern for Pinterest is its ongoing decline in users. At the end of Q4, global monthly active users (MAUs) stood at 431 million, which reflected a decline of 6% from the prior-year quarter. In the US, MAUs dropped 12% YoY to 86 million while international MAUs decreased 4% YoY to 346 million.

This decline was mainly due to the easing of pandemic restrictions and people going back to their normal routines, as well as lower search traffic due to the changes that Google made to its algorithm in November. Pinterest is also facing tough competition from other video apps in terms of engagement.

In the US, MAUs coming to Pinterest from desktop and mobile web declined around 30% YoY while those coming from mobile apps declined around 6% YoY. The decline in Pinterest’s global MAUs has been ongoing for the past couple of quarters and this is a key reason why analysts have a pessimistic outlook on the company’s prospects.

However, during Q4, engagement trends began to normalize. On its conference call, the company stated that the propensity of Pinners to adopt use cases like home decor or cooking in Q4 2021 was similar to the trends seen in Q4 2019.

Looking ahead, the company believes the pandemic unwind will be a less meaningful engagement headwind as it moves through 2022, particularly after mid-March when it will begin to lap the widespread easing of restrictions. However, engagement headwinds from algorithm changes and competing platforms are more persistent and could disrupt normal seasonal trends. As of February 1, US MAUs were around 86.6 million and global MAUs were around 436.8 million.

While some analysts continue to retain optimism towards this stock, others prefer to take a more cautious approach.

Click here to read the full transcript of Pinterest’s Q4 2021 earnings conference call