With the board-based social media stock undergoing a volatile 2021, I’m asking if I should invest in Pinterest today following Q1 earnings?
Pinterest (NYSE: PINS) was founded in 2010 and became a public company 9 years later. One of several U.S.-based social media communities, its users find and pin GIFS, pictures, and videos to their page to research and develop ideas, projects, and hobbies.
Pinterest experienced a tough first year as a public company after going public in April 2019, its stock falling more than 40%. However, following the COVID-19 outbreak, its stock soared, and is up almost 250% year-over-year, as of April 27. Overpriced, or massive growth opportunity? Investors may well be asking if Pinterest stock is the best social media play for investors right now?
The bull case for Pinterest
Pinterest is very relevant with the younger market — 34% of social media users aged 18-29 in the U.S. use the app, while 35% of Pinterest users are 35-49 years old. This number is growing too, with Gen Z users growing by 50% in 2020, and Millennial users jumping 35% in the same period.
Pinterest is also niche. Users research their interests and products with the intent to buy, with more than 60% of millennials using it for this purpose. Nearly 80% of U.S. Millennial women are on Pinterest and 40% of Millennial men, proving their loyalty to the platform. This is why Pinterest has such good strength in its ad-based revenue, which helped total revenue for 2020 soar by 48% year-over-year to $1.7 billion.
The bull case for Pinterest is still very strong. It boasts 478 million monthly active users (MAUs) as of March 31 2021, while Q1 revenue and earnings for this year surpassed estimates. Earnings per share for Q1 came in at $0.11 versus $0.07 expected, on revenue of $485 million versus $474 million expected. What’s more, average revenue per user surpassed th one dollar mark for the first time ever, hitting $1.04 in Q1.
soar to a record $443 million in Q3 this year. With higher consumer interest, around 80% of active users have made at least one purchase seen through an ad, a figure that will continue to draw interest from companies.
With very little debt and a predicted revenue jump in Q2 of 105%, this stock might be worth pinning to the top of your list.
The bear case for Pinterest
Social media is exceptionally crowded, and the likelihood of Pinterest becoming as big as Facebook is not that high in the short term. With its niche and, admittedly, unique take on an internet community, Pinterest could be seen as similar to the Microsoft-owned LinkedIn as serving a limited purpose. What’s more, Q1 2021 user growth missed expectations of 480.5 million MAUs. The company has cited the easing of lockdown restrictions worldwide as a potential headwind to growth and user engagement.
Roughly 90% of Pinterest’s revenue comes from advertising, and with 77% of its users being female compared to 14% male, this could limit the overall range and diversity of advertisements. Moreover, heavy reliance on advertising revenue could be a problem for the company, especially with Apple’s recently launched iOS 14.5 update that will greatly affect targeted ads for companies such as Pinterest and Facebook.
So, should I buy Pinterest stock?
From hope-shattering IPO to stock market darling, 2020 was a transformational year for the advertising industry and Pinterest. Up 14% year-to-date (YTD), it is not quite enjoying the heights of 2020, but that is ok. Though many investors may be concerned about its stock being too expensive, its growth potential is high, especially as more and more users break away from the traditional giants like Facebook and Twitter.
As for the downsides, they are outweighed by the positives. Pinterest is proving itself to be innovative and bold, potentially expanding into the e-commerce sector as a diverse and varied, mood-board platform.
With around 93% of people using Pinterest to plan purchases, Rich Pins are designed to provide leads with useful information about products and services they are attached to.
Pinterest recently announced that it will be launching a ‘Creator Fund’. Initial plans involve paying eight influencers from under-represented backgrounds to create content for their platform, with intentions to expand in the future.
Depends on your opinion of Pinterest. Some investors believe it is overvalued due to the niche market and reliance on ad revenue, others believe that it is undervalued as the figures show great potential for 2021 and onward, despite COVID-19.
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