Pinterest (NYSE: PINS) released its Q2 results on Monday evening. Although most of its numbers came in below estimates, the stock rallied by more than 10%, which is a head-scratcher. So, here are the possible reasons why Pinterest stock popped.

Pinning the bottom

While Pinterest reported rather lacklustre numbers, I think there were several key figures that served as catalysts for the stock’s rally. I imagine this to primarily be its revenue, monthly active users (MAUs), and average revenue per user (ARPU).

After disappointing revenue numbers from the likes of Alphabet, Meta, and Snap last month, investors were relieved to see Pinterest perform in line with the guidance it set out in the last quarter. Although there were misses on EPS and EBITDA, it was also a relief to see MAUs bottom, as predicted by CFO Todd Morgenfeld in last quarter’s earnings call.

More importantly, mobile MAUs grew by 8%, while desktop users declined by 30%. This is significant because mobile users constitute more than 80% of the revenue generated. Therefore, Pinterest is seeing growth in higher quality users. And with the launch of its new app, Shuffles, for collage-making and mood boards, I’m expecting growth in mobile users to continue.

Elliott says Pinterest is ready

Another key catalyst for the pop in Pinterest stock can be attributed to Elliott Management disclosing its stake in the company. The activist investor now holds a 12% stake and is the company’s largest investor. Elliott also gave the vote of confidence to Pinterest’s new CEO Bill Ready, which shored up investor sentiment.

The impact of the appointment is already taking effect. Under Ready, ARPU saw an increase of 17% despite a challenging macroeconomic environment. This is most likely due to Pinterest expanding its ad reach to more regions. In Q2, the firm launched ads in Japan, and finally launched Idea Ads in 34 markets. Moreover, it expanded its ad coverage in South America, which should boost rest-of-world ARPU in the future.

Boarding for take off

All that being said, is Pinterest stock worth a position in my portfolio? Well, its monumental drop from an all-time high of $89.90 and high price-to-earnings (P/E) ratio of 60 isn’t very pleasing. Furthermore, inflation and supply chain disruptions are already impacting several of its advertisers, specifically in the consumer packaged goods market.

However, there’s so much more potential behind Pinterest. Its evolution to becoming a hybrid e-commerce and social media platform is starting to take shape. This is evident with the growth in its product catalogue, which now hosts over a billion items. In addition to that, shopping ad revenue grew twice as fast as overall revenue in Q2. And with 90% of search queries still unadvertised, there could be plenty of unexplored revenue waiting in the pipeline.

It’s also worth noting that its balance sheet is as perfect as it comes. With $3.25bn worth of cash and equivalents, and zero debt, I believe Pinterest has got a long runway to expand its business and earnings potential.

The board also mentioned its intention to continue investing this year, and expects to return to meaningful margin expansion in 2023, as Pinterest reaps the rewards of those investments. Having taken everything into consideration, I’ll definitely be buying more Pinterest stock for my portfolio.

The post Here’s why Pinterest stock popped 10%! appeared first on The Twelfth Magpie.

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Pinterest is Ready

Those following Pinterest for a while now would know that the company is integrating its social media and e-commerce offerings together, as it sees huge potential in that space. This is what led to its partnership with Shopify in 2020.

Since then, it has been churning out new features every quarter. One is AR Try On, which allows users to virtually place items from US retailers, using their phone’s camera. Additionally, it launched Idea Ads, which stimulates paid partnerships between creators and businesses from creator-produced content.

But more recently, it recently acquired THE YES to further develop Your Shop. The acquisition aligns with much of what Pinterest is trying to do, as Your Shop allows users to see customised shopping surfaces with brands and products, based on their activity and preferences on the platform.

Skills to pay the Bill

With those developments in mind, I can see why the board decided to hire Bill Ready. For all that Ben Silbermann has done for the company, his lack of expertise in the e-commerce space was prevalent. Therefore, hiring an online commerce expert is an excellent choice, as the new Pinterest CEO has worked at a number of large companies.

Ready was poached from Alphabet‘s Google, where he was the President of Commerce, Payments & Next Billion Users. He oversaw Google’s vision, strategy, and successful delivery of its commerce products, such as Google Wallet. Furthermore, he’s held several leadership roles at PayPal, where he was the Executive Vice President and COO, while also being the CEO of its subsidiaries, Braintree and Venmo.

With such an impressive record in online commerce, I have full confidence that Ready is the right man for the job. I believe that he’s going to be the right leader to make radical progress in the e-commerce space. As the platform continues to rollout its popular seamless checkout feature, Ready could very well help to scale it internationally, where Pinterest has a lot of untapped potential.

Sale of the year?

So, with the Pinterest stock down 45% this year, could this be the sale of the year? For one, the NYSE firm has one of the best balance sheets I’ve encountered. It has zero debt and a fat cash balance of $2.7bn. Moreover, it boasts healthy earnings margins of 12.5%. These indicators point towards a strong company with good financials, earnings power, and bright future prospects — everything that satisfies Warren Buffett‘s investment criteria. This is why I’m a big fan of the stock.

Despite losing almost half of its value already this year, I still expect the stock to continue declining. This is because growing interest rates are spurring fears of a potential recession. Nonetheless, I’m still bullish about the company’s prospects. As such, I’ll definitely be using the current bear market as a buying opportunity for me to purchase Pinterest shares at a discount.

The post Should I buy Pinterest stock with its new CEO? appeared first on The Twelfth Magpie.

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• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Pinterest, Alphabet, and PayPal at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), PayPal Holdings, Pinterest, and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Pinterest (NYSE: PINS) share price is now trading below its initial public offering price. Once an $85 stock, it now exchanges hands at less than $20 per share. So, here’s why I’ve opted to buy its shares despite the monumental drop.

Money doesn’t always talk

Pinterest stock and its earnings seem to have an inverse correlation. While earnings and average revenue per user (ARPU) continue to grow on a year on year basis, its stock continues to plummet to new one-year-lows.

Despite the increase in ad spend, the majority of analysts seem to misunderstand the tech firm’s business model. The focus seems to be pinned on monthly active users because Pinterest is seen as a social media platform. When viewed as such, a declining number of monthly active users (MAU) doesn’t bode well for the stock. Nonetheless, management stated in its Q1 results that this decline seems to be bottoming out, and expects MAUs to grow again later this year.

That being said, Pinterest is more than just a social media company that generates revenue from users scrolling through its platform. It’s an e-commerce platform with a social media front. The business generates revenue from engagement. This means that advertisers only pay when users engage with promoted pins. As most of these have indirect promotions of products in a pin, Pinterest is essentially selling products through a creative manner.

‘Pinning’ users down

Given that the NYSE-listed firm struggles with pinning users down, a number of acquisitions and partnerships have recently been made. This is an effort to bring better proposition to both advertisers and users.

For one, the company recently acquired Vochi, a video creation and editing app. Additionally, it partnered with Tastemade on a multi-million dollar deal. I can see how these developments will allow creators to create better video content and consequently, bring more users and revenue to Pinterest.

The firm also recently acquired The Yes, an AI-powered shopping platform. It uses an algorithm to find the right products that are personalised for a user’s taste and style. This acquisition aligns with much of what Pinterest is trying to achieve in the e-commerce space, given its recent introduction of Your Shop. Its key partnership with Shopify has paid dividends as well. I expect its top line to increase as it continues to roll out seamless checkout to more merchants.

Discount season

Nevertheless, Pinterest faces economic headwinds. A slowdown in the US economy, where it gets the majority of its revenue from, is expected. This could hinder growth in the short to medium-term. However, this isn’t a huge concern for me, as I plan to buy and hold Pinterest stock for the long term.

With a flawless balance sheet, a mountain of cash at $2.7bn, and zero debt, I’m confident that Pinterest can weather a potential economic slowdown. Not to mention its 12.5% profit margin shows that it’s got substantive earnings power. Moreover, its recent acquisitions and partnerships lead me to believe that Pinterest is finally doing a better job of marketing itself to potential users. As such, I see a further drop in its share price as a buying opportunity for me for Pinterest stock.

The post I bought Pinterest stock and here’s why appeared first on The Twelfth Magpie.

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• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Pinterest at the time of writing. The Motley Fool UK has recommended Pinterest and Shopify. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Pinterest (NYSE: PINS) just reported its Q1 earnings results. With a bright future ahead and it beating analysts’ estimates for earnings per share (EPS) and revenue, I’ll be looking to add to my position in Pinterest while its share price stagnates at IPO levels.

Pinning money

Pinterest posted revenue of $575m, up 18% year on year (Y/Y). Non-GAAP EPS also managed to beat estimates as it came in at $0.10. This was 8 cents higher than Wall Street’s expectations. The firm’s net loss was a 76% decrease to -$5.3m this year, a significant step closer to profitability. This was down to the increase in average revenue per user (ARPU), which saw a 28% jump (Y/Y).

The company also saw its cash and equivalents increase to $1.7bn, and liabilities decrease to $459m. This leaves it with room for investment in order to grow its user base and average revenue per user (ARPU).

Pinterest-ing developments

Speaking of the user base, Pinterest did see a decline in monthly active users (MAU). The New York Stock Exchange-listed business saw its MAUs decline by 9% on an annual basis. However, management suggested that the downtrend in MAUs could be bottoming. Nonetheless, the figure saw a 0.5% increase from the previous quarter. CFO Todd Morganfield also expects MAU headwinds to dissipate from Q3 onwards.

To give this figure more context, Pinterest highlighted in its letter to shareholders that mobile users, which make up the bulk of its traffic and revenue, saw mid-single-digit growth in the most recent quarter. This is great news as Pinterest continues to gain more quality than quantity.

Moreover, CEO Ben Silbermann cited plenty of innovations for the platform. One of them is the development of a new API for stakeholders and advertisers. This should bring additional value, which could result in higher advertising revenue. Additionally, it has begun beta testing ‘Your Shop’. Its partnership with Woocommerce has also seen shopping engagement grow, as seamless checkout continues to roll out to more users, according to management on the earnings call.

The monetisation of video Idea Pins, which saw a 15 times increase in engagement, makes me excited too. This is evident in its R&D spending that was up 13% quarter on quarter, with management mentioning its intention to spend more on innovating its offerings throughout 2022.

Pinned down supply chain

All that being said, Pinterest does face a couple of challenges in the near term. Although guidance for revenue in Q2 is for 11% annual growth, macroeconomic factors cannot be ruled out. Q2 is statistically a weak quarter for Pinterest as users venture outdoors. Nonetheless, the removal of sign-up barriers to use the platform should bring more engagement.

However, I will be paying attention to the upcoming US GDP and retail numbers, as they may have an effect on future revenue. After all, supply chain issues have already caused a decline in advertising spend by consumer packaged goods firms. With the effects of China’s lockdowns on global supply chains still to be felt, Q2 could see weaker numbers. Nevertheless, I remain bullish on the long-term prospects of Pinterest and will be buying more shares for my portfolio.

The post Pinterest earnings beat Q1 estimates. Here’s why I’m buying the shares appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

John Choong owns shares of Pinterest at the time of writing. The Motley Fool UK has recommended Pinterest. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.