Pinterest (PINS) is among the social media stocks many investors have on watch right now. I am bullish on the stock.
Indeed, Pinterest has seen quite a bit of volatility in recent months. Much of this volatility is a result of what was perceived to be a rather poor earnings report.
However, for long-term investors with an eye for companies that are looking to position themselves as leaders in their field, Pinterest is certainly a stock worth looking at today. (See PINS stock charts on TipRanks)
Earnings Release Better than You Think
The company posted triple-digit revenue growth in its Q2 earnings report. Indeed, this social media platform managed to eclipse analyst estimates for its top and bottom lines, by quite a wide margin. However, Pinterest stock fell to a 10-week low immediately after its otherwise strong earnings report.
There are certainly reasons for this decline. Pinterest lost roughly 5% of its monthly active users since the company’s Q1 earnings report, for example.
However, the context of these lower MAU numbers is what matters. Pinterest saw a rapid increase in users last year. Some of those users that joined last year may not have otherwise joined in a non-pandemic environment.
Additionally, average revenue per user was up dramatically this past quarter, on a year-over-year basis. The users that Pinterest lost were mostly low-revenue, desktop users. The company was able to replace these users with customers intent on clicking on ads, and paying for goods via the company’s platform.
That’s ultimately better for business. This also explains how Pinterest was able to blow away revenue and earnings expectations, while also experiencing some churn among users.
The market’s view that Pinterest’s user base is deteriorating seems to be incorrect. Rather, Pinterest has let walk the customers it doesn’t want, while inviting mobile users (who generate more revenue) to the fold. That’s a trade that seems to be worth taking.
Strong Financials, Fundamentals
As a result of its massive earnings beat, Pinterest now has a much more stable set of fundamentals than it did last year. Putting aside the conversation around active users for a moment, the numbers are worth looking at.
Pinterest’s $613 million in revenue this past quarter beat analyst estimates by nearly $50 million. It also represented year-over-year growth of 125%.
Looking down the road, Pinterest has forecasted slightly lower revenue growth. However, a small step down from triple-digit revenue projections should not be looked at as a negative.
Rather, Pinterest’s management team has proven to be prudent in setting the company’s growth bar to an achievable height, then pole-vaulting over those expectations.
There’s nothing to suggest that Pinterest can’t continue to grow in the same fashion that it has these past two quarters. Indeed, if Pinterest is able to continue to improve the profitability of its average active user, long-term investors stand to benefit by being able to buy in at lower levels.
Major Social Commerce Player in the Making
Social commerce is a booming sector right now. A great destination for advertising, Pinterest has also proven its platform is a winner in the social commerce sector.
Social commerce is a highly profitable industry, currently estimated to be worth $89.4 billion. However, this sector is also expected to be worth $605 billion by 2027. Pinterest’s hope is that the company will be able to gobble up as much of this market share as possible over the coming years.
To do this, Pinterest has recently included features that allow users to see Pins that come with buyable products. The company’s management team has said that this feature has driven 20x growth regarding product searches since it was launched in 2020.
Wall Street’s Take
As per TipRanks’ analyst rating consensus, Pinterest stock is a Moderate Buy. Out of 16 analyst ratings, there are six Buy recommendations and 10 Hold recommendations.
The average PINS price target is $71.86. Analyst price targets range from a high of $85 per share to a low of $60 per share.
There are various reasons to believe in Pinterest.
The company’s recent numbers suggest that perhaps the growth story moving forward may not be as excellent as many hoped, in terms of aggregate growth.
However, breaking down the numbers, we see that Pinterest stock is truly one of the more undervalued stocks in among its peers right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article
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