PINS

Pinterest, Inc.

21.47
USD
7.89%
21.47
USD
7.89%
16.14 81.77
52 weeks
52 weeks

Mkt Cap 12.08B

Shares Out 562.70M

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Pinterest: Bargain Bin

As the social media space faces drama with the Twitter (TWTR) buyout by Elon Musk taking a different twist every day, the market mostly ignored the better than feared Q1'22 results by Pinterest (NYSE:PINS). A research report suggesting the digital ad market will more than double by 2026 makes Pinterest a strong investment target after normalization following Covid pull forwards. My investment thesis remains very Bullish on the stock trading back close to the lows. Normalization The key to the recent earnings report was the monthly active users (MAUs) metrics. Pinterest was able to return to user growth in Q1'22 with sequential users up 2 million from the 431 million trough in the prior quarter. As part of the guidance, Pinterest provided the April 25 global MAU total at 432.9 million suggesting flat users from the Q1'22 levels. The social media site will probably struggle to hold onto these user totals in the tough reopening Summer months. At the April pace, Pinterest would report a 5% YoY decline in MAUs. The company has now seen users normalize at a higher level providing the company with the higher level to derive growth and increase monetization. These user monetization levels remain insanely low despite the promising shopping aspects of the site. In Q1'22, the company grew the key U.S. and Canada ARPU by an impressive 31%, but these users didn't even generate $5 per user while Facebook (FB) produces nearly $50 per domestic user in the weaker March quarter with a global ARPU near $10. The monetization of users outside of the U.S. remains almost non-existent. Europe is still less than $1 and the ROW is only pennies. Even 5x the APRU only gets the average revenue per user to $6.55 and turns the Q1'22 revenues into $2.9 billion, up from the $575 million just reported. Pinterest has the potential to eventually catch and top Facebook monetization rates with a focus on social commerce. The opportunity still exists as Pinterest ramps up spending to grow the ad ecosystem and shopping experience on the website. The research by ARK Invest forecasts a market shift by retailers over the next decade where spending goes from rent to digital marketing. The research firm that manages the ARK Innovation (ARKK) ETF, amongst others, predicts the U.S. digital advertising market will surge from $180 billion in 2021 to at least $275 billion. The firm even has a bull case view where the market reaches $410 billion in 2026. The major thesis of ARK Invest is that retail stores have too much square footage and the industry will shift online utilizing far more digital marketing to attract customers versus the far more expensive storefront rent. The firm estimates that average retail rent is $20K per year versus somewhere around $1K for a Shopify (SHOP) online store. Ultimately, the money saved on rent will shift to digital advertising and retailers with online stores will find Pinterest a prime destination to sell products pinned on the site. After all, Pinterest has over 430 million monthly users focused on retail inspirations while other websites might have more users visiting those websites to connect with friends and family or discuss politics, not shop. The company reported 2021 revenues of $2.6 billion. If Pinterest just grabbed an equal share of the ad market under the bullish case by 2026, revenues would jump to $5.9 billion. The company should be able to vastly monetize a user base ready and willing to buy items reviewed on the site. Pinterest is primed to play in the social commerce future of social media. The company is beta testing Your Shop, a personalized shopping page, to increase monetization of retail items. Such a personalized shopping experience is where Pinterest can monetize the far more valuable purchase intent on the site via an inspiration-to-purchase journey. Current revenue estimates are only $3.7 billion in 2023 reaching $4.2 billion by 2024, but the company has vastly more upside than just 62% revenue growth over 3 years, even with weak numbers this year. With a market cap of only $14 billion now, Pinterest is a relative bargain with user totals stabilized and likely to grow in future years. The stock trades at less than 4x 2023 revenue targets and the company is hardly targeted to grow at a clip faster than the overall digital ad market while the opportunity exists to far exceed the market growth rates. Takeaway The key investor takeaway is that Pinterest has fallen so far this year, the stock is now in the bargain bin. The social media site doesn't even need to grow the user base with much opportunity to expand monetization of the existing large user base. Investors should use the weakness to build a position in the social shopping site. If you'd like to learn more about how to best position yourself in under valued stocks mispriced by the market, consider joining Out Fox The Street. The service offers model portfolios, daily updates, trade alerts and real-time chat. Sign up now for a risk-free, 2-week trial to start finding the next stock with the potential to generate excessive returns in the next few years without taking on the out sized risk of high flying stocks. This article was written by Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Stone Fox Capital launched the Out Fox The Street MarketPlace service in August 2020. Invest with Stone Fox Capital's model Net Payout Yields portfolio on Interactive Advisors as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Net Payout Yields model Follow Mark on twitter: @stonefoxcapital Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in PINS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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