Is the board-based social network Pinterest as cheerful as it is cheap, and should investors be looking to fill their portfolios with it?
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 typical first year as a public company: a seemingly great start followed by a disappointing Q3 then followed by a stronger Q4 as yearly earnings were released. However, following the COVID-19 outbreak, its stock has soared almost 500% from March lows. Overpriced, or massive growth opportunity? Investors may well be asking if Pinterest stock is a good buy?
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. Social media holds a strong pull for those of us who grew up in the era of fast-paced, social networking. Indeed, 70% of millennials prefer to shop online using Amazon, Shopify, or Mercado Libre instead of brick-and-mortar stores.
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. This is why Pinterest has such good strength in its ad-based revenue, which helped total revenue 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.
Pinterest HQ is currently developing a catalog of ‘shoppable’ products – ensuring that both its users and merchants will continue to use the app for the foreseeable future. In addition, users tend to be on the wealthier side with 34% of Pinterest users earning between $50,000 and $74,999 per year, while 70% have a college degree, as of September 30, 2020.
The bull case is very strong for Pinterest. Its monthly active users (MAU’s) have soared to 442 million as of September 30, a 46% increase YoY, while its Q3 revenue of $443 million has put it on course for a record-breaking year. With no debt and a predicted revenue income of $1.5 billion in 2020, expected to grow to $3.5 billion by 2023, 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 or Instagram 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.
On the other hand, some are saying that Pinterest competes with Amazon and Google, containing elements of being a search engine and an online shopping platform. If so, there could be some worry as to how far Pinterest can grow into those heavily dominated sectors.
Roughly 90% of Pinterest’s revenue comes from advertising, and with 71% of its users being female compared to 16% male, this could limit the overall range and diversity of advertisements. Moreover, heavy reliance on advertising revenue could be a problem for the company after we already saw in the summer when advertisers began to boycott social media sites. Although Pinterest was unaffected by this, relying heavily on ad revenue during times of so much uncertainty could lead to long-term financial issues.
So, should I buy Pinterest stock?:
From hope-shattering IPO to stock market darling, 2020 has been a transformational year for Pinterest. Up 250% year-to-date (YTD), it is far surpassing the S&P 500 and other benchmarks. 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.
Not really. To make money on Pinterest, you need to have a business with a product to sell. Otherwise, you can become a well-known user which will encourage companies to pay you to advertise for them.
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.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold positions in companies mentioned above. Read our full disclosure policy here.