After a stellar 2020 with the stock up over 250% along with recent rumors of acquisition talks, is this social media player a good investment?
Pinterest (NYSE: PINS) is a unique social media platform allowing users to search for particular topics and create ‘boards’ or ‘pin’ pictures and videos. It was founded in 2009 and went public in 2019 led by co-founder and CEO Ben Silbermann. Pinterest has consistently grown revenue and users but with its stock price up significantly in recent times, is it a good buy?
The Bull Case For Pinterest Stock
Rather than connecting people like other social media platforms such as Facebook and Snap Inc., it aims to inspire people and provide a positive experience. It does this through its strong policy on misinformation and the lack of direct contact between users. This is a key differentiator from other social media platforms that advertisers have boycotted recently. This has helped it expand its user base by 37% year-over-year (YoY) to 459 million monthly active users (MAU) in Q4 of 2020 and attract advertisers. In the last fiscal year, Pinterest added a record 100 million additional MAUs.
Pinterest is also aimed at large life events such as weddings, home renovations, and more. This is crucial as the alignment between users and businesses helps to drive ad revenue. Its S-1 filing stated that “In the United States, more people use Pinterest to find or shop for products than on social networks”. Targeting consumers around these costly major life events attract advertisers to the platform and helps Pinterest monetize its users. Pinterest has partnered with Shopify to allow merchants to upload products and turn the products into shoppable pins with future global expansion plans.
Pinterest reported tremendous growth in Q4. Revenue increased by 76% YoY to $706 million with a net income of $208 million, boosted by COVID-19. Crucially, it continues to monetize international users, who now account for 17% of revenue, growing by 145% from the year prior due to strong advertising demand. The average revenue per user also increased 29% YoY. This is vital for future growth as revenue per user internationally is worth significantly less than in North America, coming in at $0.35 and $5.94, respectively.
Pinterest continues to invest in its business in both the consumer side and advertising. It improves user experience with additions such as sponsored ‘Pins’ to drive long-term growth. Further expansion in Europe and Latin America is another exciting prospect for this company. It appears to be only scratching the surface of its true potential and rumored interest from Microsoft validates this.
The Bear Case For Pinterest Stock
Larger platforms such as Twitter, Instagram, and Facebook provide stiff competition. The social media landscape changes quickly, and Pinterest needs to continue to adapt to gain new users. Furthermore, the emphasis placed on security by Pinterest is key to its positive brand awareness, and if there was an incident, this could adversely affect the business.
One major question is whether this growth is here to stay and the ability of Pinterest to retain users post COVID-19. Management previously stated that engagement increases when lockdown orders are in effect and “decrease when orders are lifted”. It is unclear the impact that this will have, but investors should be aware of this and the possible stagnation of users.
Pinterest is also unprofitable on a full-year basis, reporting a 2020 net loss of $128 million. It also expects revenue growth to slow down in the next quarter, and although the company is in growth mode, investors should keep an eye on profitability.
So, Should I Buy Pinterest Stock?
Despite the large increase in its stock price, Pinterest appears to be well-positioned to continue to grow. It is continuing to monetize international users and improve the platform, attracting both advertisers and providing revenue growth. The lack of regulatory challenges facing it compared to other platforms is another positive. This stock should continue to provide market-beating returns in the years to come but may also be volatile.
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