Is Pinterest a Buy as Social Media Landscape Shifts?

Pinterest, Inc. (PINS), an international visual search and discovery platform provider, performed well in the second quarter and reported robust financial results. The company reported a record quarterly revenue of $ 853.68 million, indicating an increase of 20.6% from the prior-year quarter. However, its global quarterly active users graphs appears to be moving slow.

Pinterest has emerged as a go-to destination for inspiration. People from all generations worldwide engage on the platform to explore their interests and share their inspiration with others. Further, its drive for innovation like introducing new ways to share Pinterest boards, keeps the users interested.

PINS recently introduced new AI tools for creativity and performance. Pinterest Ad Labs is an innovation program where select brands can test prototypes of new creative and ad tools leveraging generative AI features. With this, Pinterest aims to encourage experimentation and to learn from advertiser feedback. It offers personalized background generation and collages for advertisers.

Further, with the increasing worldwide internet usage penetration among the general population, the internet industry is growing. There were 5.45 billion internet users worldwide as of July 2024, amounting to 67.1% of the global population. Further, of this overall total, 5.17 billion, or 63.7% of people, were social media users of the world's population.

During the quarter, PINS partnered with Integral Ad Science (IAS), a leading global media measurement and optimization platform, to provide global advertisers higher transparency into campaigns across PINS’ in-app feed through IAS' AI-driven Total Media Quality (TMQ) Brand Safety and Suitability product.

Bill Ready, CEO of Pinterest said, "We had another impressive quarter, reporting a 21% increase in revenue and 12% growth in monthly active users globally. Our monetization efforts are paying off. Advertisers are seeing improved performance across key objectives on Pinterest – from brand awareness to conversion – as we continue to roll out AI-powered products and experiences.”

He added “As a result, we’re gaining share of advertising budgets with some of the world’s largest brands. I’m proud of our pace of innovation as we execute against the opportunity ahead."

According to the company’s guidance for the third quarter of 2024, PINS expects its revenue to be in the range of $885 million to $900 million, reflecting 16% - 18% growth year-over-year.

Shares of PINS have surged 15% over the past year to close its last trading session at $31.65. However, the stock has plunged 23.5% over the past month.

Let’s look at factors that could influence PINS’ performance in the upcoming months.

Positive Recent Developments

On June 13, PINS and Integral Ad Science (IAS), a leading global media measurement and optimization platform, entered a partnership to provide global advertisers with greater transparency into campaigns across PINS’ in-app feed through IAS' AI-driven Total Media Quality (TMQ) Brand Safety and Suitability product.

The new launch includes features like trusted campaign insights, frame-by-frame analysis, campaign-level measurement, and global coverage. The new TMQ for PINS provides advertisers safeguards across a total of 39 countries in 40 languages. The partnership will expand PINS operations and offer brand safety and greater confidence to confidence via best-in-class technology.

Robust Financials

For the second quarter that ended June 30, 2024, PINS’ revenue increased 20.6% year-over-year to $853.68 million, of which its revenue from the US and Canada rose 19.1% year-over-year to $673 million. The company’s adjusted EBITDA grew 68.1% from the year-ago value to $179.91 million.

Furthermore, the company’s non-GAAP net income came in at $207.16 million and $0.29 per share, indicating increases of 45.8% and 38.1% from the prior year’s quarter, respectively. The company’s total assets totaled $3.75 billion as of June 30, 2024, compared to $3.59 billion as of December 31, 2023.

Solid Historical Growth

PINS’ revenue has grown at a CAGR of 14.1% over the past three years. The company’s net income has increased at a CAGR of 6% over the same timeframe, while its normalized net income has improved at a CAGR of 12%.

Also, the company’s tangible book value and total assets have increased at CAGRs of 7.4% and 9.1% over the past three years, respectively. And its levered free cash flow grew 32.2% over the same timeframe.

Favorable Analyst Estimates

Analysts expect PINS’ revenue for the third quarter (ending September 2024) to increase 17.4% year-over-year to $895.90 million. The consensus EPS estimate of $0.34 for the same quarter indicates a 22.1% year-over-year improvement. Moreover, PINS has an impressive earnings surprise history, having topped consensus EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 19% and 33.9% year-over-year to $3.63 billion and $1.48, respectively. Additionally, Street expects its revenue and EPS for the fiscal year 2025 to increase 16.5% and 21.8% year-over-year to $4.24 billion and $1.78, respectively.

High Profitability

PINS’ trailing-12-month gross profit margin of 78.58% is 54.2% higher than the industry average of 50.97%. Its trailing-12-month net income margin of 5.75% is 69.6% higher than the industry average of 3.39%. Similarly, its trailing-12-month levered FCF margin of 23.34% is considerably higher than the industry average of 8.42%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 6.52%, 4.88%, and 5.12% favorably compared to the industry averages of 3.81%, 3.76%, and 1.33%, respectively.

Elevated Valuation

In terms of forward Price/Sales, PINS is trading at 6x, 378.2% higher than the industry average of 1.25x. Likewise, the stock’s forward Price/Book multiple of 6 is 201% higher than the industry average of 1.99. Also, its forward Price/Cash Flow of 22.67x is 189.3% higher than the industry average of 7.84x.

Also, PINS forward non-GAAP P/E of 21.78x is considerably higher than the 13.28x industry average. And its EV/EBITDA of 20.21x is 154.4% higher than the industry average of 7.94x.

POWR Ratings Reflect Uncertainty

PINS’ mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PINS has a B grade for Quality, consistent with its higher-than-industry profitability.

However, it has a C for Momentum justified by the stock trading below its 50-day and 200-day moving averages of $38.77 and $36.85, respectively.

PINS is ranked #26 in the 51-stock B-rated Internet industry.

Beyond what I have stated above, we have also given PINS grades for Value, Sentiment, Growth, and Stability. Get access to all the PINS Ratings here.

Bottom Line

PINS reported solid earnings for the second quarter of fiscal 2024. The company’s strong industry footing, strategic initiatives, innovative solutions, and solid financial performance position it for bright long-term prospects. However, the company grapples with flat to slow quarterly monthly active user growth.

Given PINS’ elevated valuation, waiting for a better entry point in this stock seems prudent.

Stocks to Consider Instead of Pinterest, Inc. (PINS)

Given its near-term uncertain prospects, the odds of PINS outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the B-rated Internet industry instead:

Meituan ADR (MPNGY), Dingdong (Cayman) Ltd (DDL), and Yelp Inc. (YELP).

For exploring more A and B-rated internet stocks, click here.

What To Do Next?

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PINS shares were trading at $32.13 per share on Wednesday afternoon, up $0.48 (+1.52%). Year-to-date, PINS has declined -13.26%, versus a 18.21% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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