The world is at the end of the pandemic, but many growth stocks have seen their valuations and prices fall. The S&P 500 is down about 19% since the start of the year. When the markets fall so sharply, buying opportunities are revealed. Does Pinterest (PINS) such a company? It has lost more than 37% since the start of the year. Due to the company’s global reach and sticky platform, I’m bullish on the stock over the long term.
Why Pinterest Might Be Worth Watching
The company released its numbers for the first quarter of 2022. Revenue rose 18% year-over-year to $575 million. However, global monthly active users or MAUs fell 9% to 433 million, compared to the first quarter of 2021. If you break down the numbers, MAUs in the US and Canada fell 13%, Europe 12% and the rest of the world 6%. This is a major factor that has caused the stock price to stagnate since its earnings announcement. After this news, investors are not convinced that the stock will go up.
The other challenge for the company is to increase its ARPU (average revenue per user). Its global ARPU is $1.33, but the ARPU for US and Canadian customers is $4.98, Europe is $0.72, and the rest of the world is a paltry $0.08 . It doesn’t help that North American MAUs fell the most. Even a doubling of the ARPU of the rest of the world cannot help it catch up with the ARPUs of the United States and Canada.
To be fair, ARPU for Europe was up 40% year over year from $0.51 in Q1 2021 to $0.72. The ARPU for the rest of the world increased by 164% over the same period, from $0.03 to $0.08. ARPU in the United States and Canada increased by 31%, from $3.79 to $4.98.
The company estimates its second-quarter revenue will grow about 11% year-over-year. It expects a 35-40% increase in operating expenses from Q2 2021. Pinterest says it will increase investment in its “native content ecosystem, core Pinner experience, shopping and its workforce in research and development, sales and marketing”.
While Pinterest’s confidence in its future has led it to make a bold statement on investments, there are still plenty of investors who are cautious about the shrinking user base. When Netflix (NFLX) announced that it had lost 200,000 subscribers in the first quarter of 2022 and would continue to lose more in the second quarter, its stock fell more than 35%, resulting in the removal of approximately $40 billion from its market value . Since the start of the year, Netflix has lost almost 68%. If you think falling MAUs are a serious problem that needs to be addressed, you would do well to avoid the stock.
During Pinterest’s post-earnings conference call, CEO and co-founder Ben Silbermann said, “Despite a challenging macroeconomic and geopolitical environment, we grew our revenue by 18% year-over-year. “
On TipRanks, seven out of 15 analysts gave Pinterest a buy rating, while eight suggested a hold on its stock. The analysts’ average price target is $29.74, which is a decent upside of 45.43% on the stock.
While Pinterest has managed to continue increasing its earnings, the pandemic-boosted tech stock is in a tough category as its investors have been quick to sell its shares in the current economic environment. The company will have to prove that it is worthy of staying if it is to return to its lofty valuation.
Read full disclosure