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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Where Will Pinterest Stock Be In 5 Years?

Summary PINS is expecting slower YoY revenue expansion and a QoQ increase in costs for the second quarter of 2022. Pinterest's mid-term growth is reliant on the success of its product innovation and international market expansion efforts, while search algorithm changes and competition are expected to be the key headwinds. I retain my Hold rating for Pinterest, after I have considered both the company's five-year growth prospects and Q2 2022 outlook. Looking for more investing ideas like this one? Get them exclusively at Asia Value & Moat Stocks. Learn More » Elevator Pitch My rating for Pinterest, Inc. (NYSE:PINS) is a Hold. I previously wrote about PINS in an article published on February 18, 2022. In that article, I mentioned that Pinterest's shares "returning to the $50 level might be very challenging", as "PINS' valuations have de-rated because of slower revenue growth expectations." Since then, Pinterest's stock price has pulled back from $24.72 (price at time of publication of my earlier update) to $21.49 as of May 16. For this article, I review PINS' recent quarterly results, its near-term outlook, catalysts, and long-term growth prospects. In five years' time, Pinterest should be a company with a greater percentage of revenue derived from international markets and one boasting substantial growth in user-generated content boosted by new products such as Idea Pins. On the other hand, PINS' future growth prospects over the next couple of years could be adversely impacted by further search algorithm changes and stiffer competition posed by competitors with deeper pockets. The mixed 5-year outlook for the company supports my Neutral view and Hold rating assigned to PINS. PINS Stock Key Metrics PINS's shares were down -6.4% in the past month, which was relatively better than the -9.8% drop for the S&P 500 during the same period. As per the chart presented below, Pinterest's outperformance relative to the broader market came in late-April and early-May, which coincided with the time that PINS reported its Q1 2022 earnings. Pinterest's Stock Price Performance In The Last One Month Pinterest's share price did well as compared to the S&P 500 in the recent month, because certain of PINS' key headline financial metrics for the first quarter of 2022 exceeded investors' expectations. PINS issued the company's Q1 2022 earnings press release on April 27, 2022 after trading hours, and it achieved both top line and bottom line beats for the recent quarter. Pinterest's revenue increased by +18% YoY from $485 million in Q1 2021 to $575 million in Q1 2022, and this was marginally higher (+0.4%) than Wall Street's consensus sales forecast of $573 million. The company explained at its Q1 2022 earnings briefing that "strength from retail advertisers, our international business and our managed SMB advertisers" drove its top line expansion for the recent quarter. More significantly, PINS' first quarter non-GAAP adjusted earnings per share of $0.10 was substantially superior as compared to the market consensus EPS projection of $0.04. But Pinterest's Q1 2022 earnings beat was not as good what it appears to be on paper, and this affects my assessment of PINS' near-term outlook which I elaborate on in greater detail in the subsequent section. I don't have a positive view of Pinterest's short-term future, despite the fact that some of PINS' Q1 2022 metrics like revenue and earnings were above market expectations. There are three key reasons for my dim view of PINS' near-term prospects. Firstly, Pinterest's bottom line beat was largely driven by a timing factor, rather than improved profitability or much better-than-expected revenue growth (only a marginal beat). PINS acknowledged at its Q1 2022 results call that there was "some creator marketing spend that we pushed out from the beginning of the year to the back half of the year." The company also cited "slower than desired growth in hiring" as another factor that led to lower-than-expected costs for the first quarter of this year at its most recent quarterly investor briefing. This suggests that Q1 2022 is not a good indicator of Pinterest's profitability for the subsequent quarters of this year, as some of the company's budgeted spending and investments have been simply deferred. Secondly, PINS didn't perform well on a key operating metric, Global Monthly Active Users or MAUs. Pinterest's MAUs contracted by -9% YoY from 478 million in Q1 2021 to 433 million in Q1 2022 as per its first quarter results media release. Based on S&P Capital IQ data, PINS' first quarter MAUs were approximately -1% below the sell-side's consensus MAUs projection of around 438 million. Pinterest's MAUs for Q1 2022 also fell short of the company's earlier disclosed 2022 year-to-date (up to February 1, 2022) MAUs of 436.8 million. PINS noted at the company's recent quarterly earnings call that the difference between February year-to-date and actual first quarter MAU data was attributable to "lower traffic from search" which was in turn caused by "the search algo change from Q4 (2021)." Notably, I also cited PINS' FY 2021 results briefing management comments "the search algorithm changes from Google (GOOG) (GOOGL)" are "more persistent than we've seen historically" in my prior February article. Pinterest's below-expectations first quarter MAUs imply that future changes to the Google algorithm might also be a drag on the company's financial and operating performance going forward. My negative expectations of Pinterest's short-term future are validated by PINS' management guidance. As indicated in its Q1 2022 earnings press release, Pinterest has guided for a moderation in its top line expansion from +18% in Q1 2022 to +11% in the second quarter of 2022, while expecting a +10% QoQ growth in the company's operating costs in Q2 2022. What Pinterest Catalysts Are Coming? The key catalysts for Pinterest that are expected to be coming ahead should be realized in the medium-to-long term, rather than the short-term. One key catalyst is having a more diversified geographic mix. As per its earnings media release, the US and Canada geographic region contributed 22% of Pinterest's MAUs for the first quarter of 2022, but accounted for the vast majority or 82% of PINS' top line in the most recent quarter. The mismatch between MAUs and revenue contribution clearly suggests that there are opportunities for Pinterest to earn a larger proportion of sales from markets outside North America in the future. Q1 2022 also marked a significant change for Pinterest in terms of financial reporting. This was the first quarter for which PINS disclosed revenue and MAUs for the European region separately. In the past, Pinterest only provided data for the US and non-US markets. More importantly, PINS also committed to offering information on "additional detail in those regions" when "our international operations become a more meaningful part of our business" at its Q1 2022 investor call. All of the above imply that Pinterest is very serious about the company's foreign market growth ambitions. One of the major factors that resulted in the YoY decrease in MAUs for Pinterest in Q1 2022 was that Work-From-Home tailwinds are no longer the driving force for PINS with the reopening of economies. This makes it even more pertinent for PINS to invest in new products to drive the company's future growth organically without relying too much on favorable external events. A new product feature which has gained traction is Idea Pins. According to the company's website, Idea Pins are defined as "our multi-page video format" which enable its users to "engage with video and explore content directly on Pinterest." Key Features Of Idea Pins Idea Pins have been very successful since their product launch in the middle of last year. PINS revealed at the company's Q1 2022 results call that "The number of video idea Pinners is up 15x year-over-year." Pinterest also referred to the spending on Idea Pins as part of investments related to "bringing on more native content on to Pinterest." The future success of new products launched such as Idea Pins should be one of the critical catalysts for Pinterest. Where Will Pinterest Stock Be In 5 Years? I have a mixed view of Pinterest's growth prospects for the intermediate to long term. The key growth drivers for Pinterest in the next five years are foreign market expansion and new product innovation as discussed in the preceding section. On the other hand, the major downside risks for PINS are search algorithm changes which translated into lower traffic for Pinterest, and intense competition. In my previous mid-February article for PINS, I noted that Pinterest has to fend off competitive threats from bigger rivals which include TikTok and Meta Platforms (FB) among others. S&P Capital IQ financial data points to Pinterest generating a FY 2022-2026 revenue CAGR of +14.8%, and improving its EBIT margin from 9.2% in fiscal 2022 to 15.8% in fiscal 2026. Over the next five years, Pinterest's top line will still be expanding by a decent mid-teens revenue, but PINS won't be able to achieve the average +50% sales growth rate it achieved during the pandemic. As highlighted above, there are both positive (e.g. international expansion) and negative factors (e.g. less traffic derived from search) that will have a impact on Pinterest's future top line. With respect to profitability, an improvement in profit margins over time for PINS is to be expected considering economies of scale. But the actual degree of margin expansion will also be dependent on the level of future investments required for PINS to remain competitive. PINS stock is a Hold. Pinterest's current consensus forward next twelve months' Enterprise Value-to-Revenue multiple of 3.7 times as per S&P Capital IQ is not expensive for the stock to be rated as a Sell. But PINS' expected mid-teens percentage top line CAGR is fair and it isn't sufficiently high for the stock to be called a Buy as a super-growth name (at least +20% in my opinion). As such, a Hold rating for Pinterest appears to be the most appropriate. Asia Value & Moat Stocks is a research service for value investors seeking Asia-listed stocks with a huge gap between price and intrinsic value, leaning towards deep value balance sheet bargains (i.e. buying assets at a discount e.g. net cash stocks, net-nets, low P/B stocks, sum-of-the-parts discounts) and wide moat stocks (i.e. buying earnings power at a discount in great companies like "Magic Formula" stocks, high-quality businesses, hidden champions and wide moat compounders). Sign up here to get started today! Asia Value & Moat Stocks is a research service for value investors searching for attractive Asia-listed investment opportunities with a huge gap between price and intrinsic value, leaning towards both deep value balance sheet bargains (i.e. buying assets at a discount e.g. net cash stocks, net-nets, low P/B stocks, sum-of-the-parts discounts) and wide moat stocks (i.e. buying earnings power at a discount in great companies like "Magic Formula" stocks, high quality businesses, hidden champions and wide moat compounders). Those who believe that the pendulum will move in one direction forever or reside at an extreme forever eventually will lose huge sums. Those who understand the pendulum's behavior can benefit enormously. ~ Howard Marks Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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. Comment

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