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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Google’s parent company Alphabet (NASDAQ: GOOGL) released its earnings results after the US market closed yesterday. Although revenues in every sector showed growth, figures across the board missed analysts’ expectations. With that in mind, should I still buy Alphabet stock?

Snapping back

With Alphabet missing both its top and bottom line consensus, I was surprised to see the stock pop as high as 5% in after-hours trading. There could be several reasons for this. However, I’d attribute it to the increase in advertising revenue despite Snap’s lacklustre Q2 earnings last week, which warned of lower ad spend last quarter.

Having said that, all of Alphabet’s core businesses saw growth on a year-on-year (Y/Y) basis. These figures defied the doom and gloom Snap posted in its earnings report, which spooked the stock market into a sell-off.

Vision for the future

So, with an increase in its top line, why did the Nasdaq-listed firm see a decline in its EPS? The two main culprits were higher labour costs and further investments in tech. CEO Sundar Pichai said the tech giant is planning to continue heavily investing in developing its offerings.

The latest AI-integrated search features are already showing promise, as Multisearch and Google Lens have seen increasing levels of adoption among users. The feature brings up relevant information related to objects it identifies using visual analysis. This allows people to use text and images at the same time, while giving users the ability to ask questions about what they see.

On the YouTube front, Alphabet announced a partnership with Shopify last week. This collaboration enables Shopify merchants to feature their products across YouTube channels and content. And with YouTube Shorts continuing to grow fast, this feature could help to monetise it.

As for Cloud, I was happy to see revenues continuing to hit fresh highs. Pichai confirmed that demand for the service remains robust, with more enterprises expected to come on board as new features get added. The acquisition of Mandiant that’s expected to be completed by the end of the year should also help with this. As the bulk of the company’s capital expenditure went towards servers and data centres, I’m confident in Cloud’s long-term earnings potential.

Returning for more

Although such developments excite me as an investor, I’m well aware of the risks associated with investing in Alphabet. There’s the obvious macroeconomic headwind that’s expected to dent ad spend in the near term. This was confirmed by CFO Ruth Porat on the earnings call.

More worrying is the rise of TikTok. Google exec Prabhakar Raghavan admitted around 40% of Gen Z users prefer searching via TikTok or Instagram over Google. If it fails to improve its search features or win over users, Alphabet’s core business could be compromised.

Yet, I have confidence in this experienced team to continue developing its products and services, and fend off competition. The board has shown its ability to return value to its investors time and time again.  In fact, Q2 hosted the biggest share buyback in the company’s history. Therefore, I remain bullish and will look to buy more Alphabet stock for my portfolio while it’s cheap.

The post Should I buy Alphabet stock after its Q2 earnings? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares). 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), 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 Alphabet (NASDAQ: GOOGL) share price just ‘lost’ 95% of its value today. The stock was trading above the $2,200 mark on Friday but is now trading just above $110. Here’s why, and whether I’ll be buying Alphabet stock for my portfolio.

Heading Dow-wards?

The sole reason for the drop in the Alphabet share price is its recent 20-to-1 stock split. Those who held the stock when the US market closed on Friday were awarded 19 additional stocks for every stock they held. The value of each stock has been divided by 20 as well.

According to the board, the reason for this split is to encourage higher trading volume while making access to Alphabet stocks easier. However, this is a double-edged sword. While a ‘cheaper’ stock encourages more volume to boost its share price, it also means that it’s more vulnerable to being shorted and driving the share price down. This is a genuine risk considering the negative sentiment surrounding the current bear market.

Nonetheless, the main prospect from the stock split is Alphabet’s potential entry into the coveted Dow Jones index. The index includes 30 of the most prominent companies listed on US stock exchanges. Given Alphabet’s prominence, analysts are predicting it’s a matter of when and not if the NASDAQ-listed firm gets inducted. If this happens, I expect the Alphabet share price to rally, as institutions tracking the index will have to purchase the stock.

What now?

Despite the excitement surrounding its stock split, the Alphabet share price is still down 20% this year. Fears of a recession have led investors to speculate that growth in advertising spending, Alphabet’s main source of revenue, will stall. As such, analysts’ earnings per share (EPS) estimates have seen downward revision over the last 90 days.

Alphabet’s stock plunged after it reported its Q1 earnings results, as some key figures fell short of analysts’ expectations. Slowing advertising spending from the Russia-Ukraine conflict along with currency headwinds were some of the reasons cited by management for the underperformance. But with Alphabet set to report its Q2 results next Tuesday, I’m hoping that there will be better news. EPS is expected to come in lower than a year ago. But I’ll be paying close attention to the guidance provided, in hopes the group is on track to achieve 15% revenue growth for the year.

Searching for profits

Alphabet stock is currently the largest holding in my portfolio, so should I be buying more? Well, the company has a flawless set of financials to begin with. A 5.1% debt-to-equity ratio and a mountain of cash ($134bn) puts it in an excellent position to grow and withstand an economic downturn. Additionally, it boasts high-quality earnings with excellent growth prospects from its latest developments. These include YouTube Shorts, Google Cloud, Google Workspace, Waymo, and even an improvement to Google Search.

So, with an average price target of $158.98, this gives the current Alphabet share price a 40% upside. As such, I’ll be looking to buy more of its stock as I believe Alphabet has the potential to substantially increase my wealth in the long term.

The post What just happened to the Alphabet share price? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares). 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) and Alphabet (C shares). 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 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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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 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.

The Alphabet (NASDAQ: GOOGL) share price is down 20% this year. Nonetheless, it has managed to outperform its index, the Nasdaq. With a number of groundbreaking features implemented to the Google search engine, and a 20-to-1 stock split coming up, the Alphabet share price could be about to rally.

Searching for direction

Alphabet is the market leader in the search engine and advertising field, by way of Google. Even so, it continues to innovate its product and service offerings. CEO Sundar Pichai introduced a multisearch feature at the company’s latest annual general meeting (AGM). The feature gives users the ability to search with images and text simultaneously. Additionally, Alphabet incorporated scene exploration into Google, which gathers insights about multiple objects within images, with local information for search being added as well. For example, this allows users to search for a product in the area.

Not only do these new features generate a much better experience, but it also allows for a better connection to form between users and merchants. As a result, this should improve advertising revenue for Alphabet.

Split coming up

At Alphabet’s latest AGM, shareholders finally approved the 20-to-1 stock split. The split doesn’t change the company’s financial position, but it does encourage an increase in trading volume. This makes the stock more accessible to investors, as its current $2,200 price tag makes the stock look expensive.

A cheaper-looking stock also makes Alphabet more lucrative to institutions and investors. One of these is Warren Buffett, who has made no secret of his regret at not buying Alphabet stock. Perhaps this could be an opportunity for the Oracle of Omaha to purchase a position in one of the world’s biggest companies.

Moreover, the reduced price tag will most probably get the tech stock into the Dow Jones index. This would result in a large volume of institutional buying, thus increasing the Alphabet share price. In the past, stock splits at big companies have often been preceded by rallies leading up to the split. So, if Amazon‘s latest run up to its stock split is anything to go by, Alphabet shares may be in for a rally.

Growth rally

While Alphabet narrowly missed earnings expectations in its Q1 results, this was down to an increase in R&D spend. This was shown in the company’s AGM, as improvements made in Google Maps, Google Assistant, Google Cloud, Google Workspace and other bets were on display. Therefore, I expect these improvements to have a positive impact on usability and future revenue.

With a forward price-to-earnings (P/E) ratio of 20, the Alphabet stock looks extremely lucrative to me. A market leader with healthy growth prospects and a flawless balance sheet are perfect traits I look for in a company whenever I invest.

It’s also worth mentioning that Alphabet has an excellent record of having a high return on capital employed. This gives me plenty of confidence as an investor. As such, with its share price at a 1-year low, I’ll be looking to buy more Alphabet shares for my portfolio.

The post Is Alphabet stock about to rally? appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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), and Amazon. 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.

Golden opportunity?

Given the wild swings for stocks and lower cash value from high inflation, the casual observer might have expected gold to do well. On the contrary, this week saw gold trade at its worst levels since February. This was due to the strength of the US dollar, as it hit a 20-year high, rebuffing views that the greenback is a dying dinosaur. While both gold and cash offer more safety than equities, gold has underperformed the stock market over most time periods. As such, I feel the golden opportunity isn’t investing in gold, but rather in the stock market over the long term.

There’s been lots of noise but no real direction as to whether the falls are a great buying opportunity, or just the first step in a much more serious bear market. If inflation remains high, further rate rises look inevitable. This is bad news for property, equities, and bonds, especially if paired with an economic downturn. Despite that, it’s worth noting that although the stock market seeing plenty of red lately, history’s on its side. Since its inception, the US S&P 500 has rebounded from every single market crash, for instance.

Time in the market is better than timing the market

Many investors seek to time the market by finding a bottom before investing. Unfortunately, it’s very rare that this actually works. The best-known investor globally, Warren Buffett, once said: “I haven’t the faintest idea what the stock market is going to do when it opens on Monday.” More often than not, investors have to suffer a little bit of pain before seeing a return on investment. Be that as it may, being patient is easier said than done. It’s never easy investing your savings only to watch them lose half their value. Hence why it’s crucial to pick the right stocks.

Picking the right stocks

That brings me on to how to do that. Do your due diligence — that’s the most important thing before investing in the stock market. Like the oracle of Omaha, I follow a strict checklist before purchasing stocks. I look for:

• Solid fundamentals (Low debt and healthy cash levels).
• A company with pricing power or high margins.
• Great earnings potential.

These qualities sound simple, but they’re more difficult to find in many companies than not. Nonetheless, one such company that exhibits all these traits is Google owner, Alphabet. The mega-cap boasts an excellent balance sheet, healthy margins (30%), and great earnings potential through the development of its many offerings. Nevertheless, its share price is down 20% this year as the firm came in short of earnings expectations and future underperformance remains a risk. However, I’ll be capitalising on its lower price to add to my Alphabet position.

The post My 3 best tips on how to invest in today’s stock market appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) 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) and Alphabet (C shares). 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.

A market index is essentially a hypothetical portfolio. More popular index funds consist of a country’s top companies or an industry within the stock market. Britain’s main index is the FTSE 100, which consists of the nation’s top 100 companies.

It has managed to stay level since the start of the year, while its counterpart across the Atlantic, the S&P 500, has seen a decline of 10%. The reason behind the two indexes’ different fortunes could be down to their respective constituents.

IPOs don’t like playing FTSE

For the last couple of years, the FTSE 100 has consistently underperformed its US equivalent, at least until recently. The reason for this was a lack of tech and growth companies in the index, as many of these firms opt to list in the US. This is due to the more stringent listing requirements for companies to list on the London Stock Exchange. These include:

• Minimum market capitalisation of £700,000.
• Minimum 25% of shares in public hands.
• Three year trading record required.
• Sponsors needed for new applicants and significant transactions.
• Prior shareholder approval required for significant transactions.

London has historically sought to limit the influence of individual executives, which has deterred many tech companies that are often founder-led. The additional stamp duty to purchase shares also stifles trading volume, presenting another disadvantage for stocks.

No tech, no problem

The FTSE reflects outsized weightings in energy, commodities, and financials. In fact, these three industries account for almost half of the UK’s main index. The S&P, on the other hand, only has 16% of its constituents in these three matured industries.

Due to sky high inflation, the US Federal Reserve has had to hike interest rates. Rising interest rates are normally conducted to slow consumer spending down from higher borrowing costs. So, how has this affected the S&P 500? Given that most technology and growth stocks are valued based on potential future cash flows, a slowdown in overall consumer spending can take a huge chunk off its valuation. This has been evident as tech stocks such as Meta have seen its share price decline 45% from its all-time high.

Simultaneously, FTSE-listed stocks have enjoyed immunity from the weakness of their tech peers. For one, energy stocks such as Shell and BP have enjoyed the tailwinds from rising oil prices. Moreover, high commodity prices in iron ore, copper, and aluminium have also held the index up. Financial stocks, including banks, have also benefited from rising interest rates. This trend is expected to continue in the short to medium term. The outlook for commodities, especially energy and materials, remains solid as the global economy continues to recover from the pandemic.

The million pound question

Is investing in a FTSE 100 fund a good investment for my portfolio then? Well, the British stock market is currently one of the cheapest in the world. It’s trading at a price-to-earnings (P/E) ratio of 14, far lower than the S&P 500’s 16. It also has a projected earnings yield of 13% over the next year, which is forecasted to be twice as much as the S&P.

On that basis, I’m keen to invest in the FTSE 100 for my portfolio through index funds like Vanguard FTSE 100 UCITS ETF (VUKE). Nonetheless, I also see a buying opportunity for the S&P 500, given its incredible track record of producing outstanding returns.

The post Here’s why the FTSE 100 has outperformed the S&P 500 this year 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 has no position in any of the shares mentioned at the time of writing. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has no position in any of the shares mentioned. 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?
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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.

Alphabet (NASDAQ: GOOGL) reported earnings for its Q1 2022 results yesterday evening. Since then, Alphabet shares have taken a tumble as earnings missed analysts’ expectations. They’re still up a few percent over 12 months though. However, amid the latest sell-off, here’s why I’ll be buying more shares of Alphabet.

(Y) is everyone overreacting?

Although revenue came in at $68bn, matching the 23% growth estimates, earnings per share (EPS) underperformed. Analysts had been expecting EPS of $25.60, but were disappointed when the headline number came in a dollar lower.

Aside from that though, everything else in the earnings report was actually rather decent. Google’s biggest revenue driver in Search grew by 24% as it benefited from an uptick in retail and travel-related searches. Additionally, Alphabet managed to retain its stellar operating margins of 30%, undeterred by inflationary pressures.

So, if revenue grew and operating margins remained steady, where did all the earnings go? Well, the answer lies in the conglomerate’s cash flow statement. CFO Ruth Porat disclosed that the company spent £9.8bn on long-term investments such as property, technology, equipment, servers, and talent. This is the most the S&P 500 company has ever spent on Capex, showing that Alphabet has used this quarter to innovate its offerings.

Hey, Google. What’s the weather like today?

Cloudy, with a chance of sunshine — that’s my key takeaway from Google Cloud’s performance. Despite Cloud revenue growing 44% year on year at $5.8bn, there was a slowdown in growth from the last quarter as losses widened. Google Cloud is a business that Alphabet views to be potentially as lucrative as Search, hence why it’s heavily investing in it. Management continues to aggressively invest in its Cloud segment through global infrastructure, cybersecurity, and data analytics. I’m expecting this move to bring in more customers over time, as demand for safe and efficient cloud computing increases.

Guidance was also fairly positive. Tailwinds from hybrid working habits continued to push Google Services higher as revenue for the segment came in at $61.4bn. While YouTube’s growth took a hit, its short-form offering secured 30bn daily views in Q1. This was four times higher than in the previous year. In fact, time spent on YouTube continued to grow, shrugging off worries about TikTok taking users away.

Given that Russia only accounts for 1% of revenues, sanctions shouldn’t affect the firm’s earnings too drastically. Nevertheless, it’s worth noting that European advertisers pulled back on advertising in March due to the conflict.

Alphabet That

Alphabet has an excellent record in generating healthy returns on capital employed (26.7%). With that in mind, an EPS miss is not my biggest concern. Especially when earnings was spent on investments to secure bigger returns in the future. Pair that with a $70bn share buyback programme (5% of its publicly available shares), and this is yet another masterclass of capital allocation from Ruth Porat.

With a free cash flow of $15.3bn and a debt-to-equity ratio of 5.8%, Alphabet is in an extremely healthy position to bring shareholders value for the long-term future. I’m confident that it’s only a matter of time before the tech giant bounces back. As such, I’m buying more shares for my portfolio.

The post Alphabet shares tumble after earnings miss. Here’s why I’m buying more appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) 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) and Alphabet (C shares). 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.