In mid-April, Cleveland Research analyst Chandler Converse published a report on social media company Pinterest (PINS) warning that the quarter was looking soft.
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That turned out to have been a great call. When Pinterest reported its first quarter results on Tuesday, shares took a hit – falling about 13% to $67.
It is important to note that the stock price has already pulled off an epic run. Just a year ago, shares were trading at $16, so a pullback is not unreasonable.
The numbers in the earnings report were rather strong. Revenues surged by 78% to $485 million, compared to the Street consensus of $474 million. The company also beat projections on the bottom line. Adjusted earnings came in at eleven cents a share, and Wall Street analysts were looking for 7 cents a share. However, that was not enough for Wall Street, with the report also containing some red flags.
User Growth
For a social networking platform like Pinterest, the key metric is user growth. It is essential for long-term monetization and mindshare for advertisers. However, the first quarter for Pinterest showed some weakness in user metrics. MAUs (monthly active users) were up by 30% to 478 million, but analysts’ estimates had called for 480.5 million.
It looks like the main reason was the impact of the re-opening of the U.S. economy, according to the Pinterest shareholder letter. Starting in mid-March, user engagement dropped, as people had less time to spend online.
One of the silver linings is that retention remained strong. Yet, Pinterest has noted that it is not clear how long this will last. In other words, the company is taking a cautious approach to its forecasts. (See Pinterest stock analysis on TipRanks)
Bottom Line On Pinterest Stock
The user growth patterns are certainly troubling, but it is important to think about the big picture. The fact is that Pinterest has a large user base, and it is still growing.
Besides, the platform has some notable advantages. First, Pinterest does not have the problems with divisive and hateful content common to other social networking platforms. This is definitely a major benefit for advertisers, as they do not have to worry about damaging their brands or alienating customers. For the most part, Pinterest has created a civil and enjoyable environment.
Secondly, the company represents the next stage of ecommerce. While traditional sites like Amazon are about efficient searches for goods, Pinterest is instead focused on allowing its users to create immersive experiences. This should help improve conversions for transactions.
During the earnings call, Pinterest CEO Benjamin Silbermann noted, “We also saw product searches grow more than 20x year-over-year. Increasingly, people see Pinterest as a place to not only get inspired, but also to shop.”
Finally, Pinterest has a lot of runway left for monetization in international markets. For example, in the quarter, there was encouraging progress in Brazil, its first Latin American market.
Wall Street Weighs In
Given the drop in Pinterest stock, the valuation is more reasonable – especially for those investors looking for the long-haul. Based on TipRanks’ data, the average analyst price target of $89.57 suggests about 35% upside potential from current levels. With 14 Buys and 9 Holds, Pinterest remains a Moderate Buy.
Disclosure: Tom Taulli has a long position in Pinterest stock.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
