Pinterest (NYSE: PINS) stock has experienced significant fluctuations, managing to sustain a notable 23% increase over the past year, while also facing a steep decline of 30% from its peak value in the last 52 weeks. Despite a series of impressive financial and operational performances from the visually-oriented social media platform, investor sentiment remains cautious, casting doubt on whether the company can maintain its current growth trajectory amidst a changing market landscape.
Let’s delve into the fundamental factors influencing Pinterest’s future prospects and consider where the stock might stand one year from now.
With 522 million monthly active users (MAUs) globally, Pinterest has established a commanding presence as the premier platform for brands and creators to display image-driven content. The unique platform enables users to share and “pin” their sources of inspiration, resonating particularly well with female audiences and younger generations. The essence of Pinterest’s business model centers around advertising, providing innovative visual formats that empower brands to enhance visibility and drive product conversions with considerable efficacy.
In its most recent earnings report for the second quarter ending June 30, Pinterest achieved a remarkable 21% year-over-year revenue growth, alongside a 12% rise in global MAUs and an 8% increase in average revenue per user (ARPU). The company’s leadership attributes this success to a series of investments in artificial intelligence (AI), which have notably improved ad-targeting algorithms and user engagement, propelling adjusted earnings per share (EPS) a striking 38% higher to $0.29 compared to the same quarter last year.
Overall, Pinterest has made a robust start to the year, although tempered company guidance may provide insight into the recent downturn in stock price. The forthcoming third-quarter earnings report, scheduled for release on November 7 for the period concluded on September 30, has management anticipating annual revenue growth between 16% to 18%. This conservative forecast has fallen short of the higher expectations set by Wall Street analysts, who had predicted an uptick exceeding 18%.
While the market remains vigilant for indicators of accelerated growth, the slight change in outlook should not overshadow what continues to be a remarkable growth narrative for Pinterest.
In my assessment, Pinterest is an appealing investment due to its unique social media model that has demonstrated profound relevance to a substantial and expanding target audience. One of the most encouraging developments this year has been the company’s international expansion, marked by noticeable increases in both users and revenue. International MAUs constitute an impressive 81% of total platform users, yet this segment currently contributes only 21% to overall company revenues.
For context, the disparity in average revenue per user is striking: the U.S. and Canada generate $6.85 ARPU, while Europe lags behind at a mere $1.03, and the rest of the world generates just $0.13. This gap underlines Pinterest’s vast potential for enhancing monetization, representing a significant opportunity for long-term growth.
Strategic partnerships with major technology firms, including Amazon, which enables users to purchase items directly from Pinterest ads, in addition to integration with Alphabet‘s Google Ads Manager ecosystem, are anticipated to propel the company’s global outreach in the coming years.
According to the consensus forecast, Pinterest is set to achieve $3.6 billion in revenue this year, reflecting a 19% increase over 2023. Furthermore, an EPS estimate of $1.46 suggests a substantial 34% increase compared to the previous year. Looking ahead, projections indicate a continuation of this upward trend into 2025, with Wall Street anticipating a 17% revenue growth and 22% increase in EPS for next year.
Currently, Pinterest shares appear attractively priced following a significant sell-off from earlier highs, a decline some analysts believe may have been unwarranted. The stock is trading at a forward price-to-earnings ratio of 22 times its full-year consensus EPS, markedly lower than the ratio exceeding 30 witnessed in June. This valuation becomes even more appealing when projected into next year, with a one-year forward P/E ratio anticipated at 18.
I believe Pinterest warrants a buy rating, with favorable prospects suggesting that the stock could experience a rise by this time next year. Evidence demonstrating growing momentum in the company’s international strategy over the next several quarters has the potential to surpass earnings expectations, acting as a catalyst for a share price rally. The stock presents a viable option for investors seeking a diversified portfolio.
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Where Will Pinterest Stock Be in 1 Year? was originally published by The Motley Fool.
Interview with Financial Analyst Sarah Jennings on Pinterest’s Stock Performance and Future Prospects
Editor: Good afternoon, Sarah. Thank you for joining us today to discuss Pinterest and its stock performance amidst the fluctuations we’ve seen recently.
Sarah Jennings: Good afternoon! It’s great to be here.
Editor: Pinterest has seen a 23% increase in stock value over the past year, despite a significant 30% decline from its peak. What do you think are the primary drivers behind these fluctuations?
Sarah Jennings: Several factors are at play. First, while Pinterest has showcased strong financial growth—like a 21% revenue increase and enhanced user engagement through AI investments—investor sentiment remains cautious. The recent conservative guidance for future earnings may have contributed to market jitters.
Editor: That’s understandable. The company’s unique model resonates particularly with younger demographics and has a solid user base. Can you elaborate on how international expansion is impacting Pinterest’s growth strategy?
Sarah Jennings: Absolutely. With 81% of Pinterest’s monthly active users being international, there’s a significant opportunity for monetization. However, the average revenue per user is still much lower outside the U.S. and Canada, highlighting both the potential and the challenge. If Pinterest can enhance its monetization strategies in these regions, it could unlock substantial revenue growth.
Editor: Speaking of revenue growth, the upcoming earnings report is scheduled for November 7. Given their guidance of 16% to 18% revenue growth, how does this compare to Wall Street’s expectations?
Sarah Jennings: Analysts are expecting revenue growth to exceed 18%, so Pinterest’s more conservative outlook could lead to disappointment. This mismatch may weigh on investor confidence, even though the underlying fundamentals remain strong.
Editor: Assessing Pinterest’s valuation, many see it as attractive after the recent sell-off. What’s your take on its current valuation compared to the market outlook for the next year?
Sarah Jennings: Pinterest’s current forward P/E ratio of 22 is indeed more appealing than the 30 we saw earlier this year. With projected growth in revenue and earnings per share exceeding 17% in the next year, I believe the stock presents a good buying opportunity for those looking for value, especially considering its innovative strategies and strong user engagement.
Editor: Lastly, do you have any advice for potential investors considering Pinterest, especially in light of its recent performance?
Sarah Jennings: I would suggest looking beyond the short-term fluctuations and focusing on Pinterest’s long-term growth potential, particularly internationally. While it’s important to be aware of the risks, the future prospects, especially with their focus on enhancing ad-targeting capabilities, bearish market sentiment may not reflect the true value of Pinterest as an investment.
Editor: Thank you so much, Sarah, for shedding light on Pinterest’s current standings and future outlook. We appreciate your insights.
Sarah Jennings: Thank you for having me! It was a pleasure discussing this with you.
Strong investment opportunity. Can you explain why you believe this stock may be undervalued at present?
Sarah Jennings: Certainly! Pinterest’s current forward price-to-earnings ratio of 22 times its full-year consensus EPS is considerably lower than the over 30 ratio observed in June. This suggests that the stock has pulled back more than warranted, given its robust revenue growth and earnings potential. Moreover, as the company continues to make strides in international markets and improves monetization, we could see this ratio decrease even further, presenting a prime buying opportunity for investors.
Editor: That’s an insightful perspective. You mentioned Pinterest’s investments in AI. How do you see those efforts impacting both user engagement and ad revenue in the long term?
Sarah Jennings: Pinterest’s investments in AI are crucial for enhancing ad-targeting capabilities, which leads to better user experiences and higher engagement rates. When users see more relevant ads, they’re more likely to interact with them and ultimately convert. This creates a positive feedback loop for advertisers, resulting in higher revenue for Pinterest. As these technologies improve, we can expect to see an uptick in average revenue per user as well, particularly in under-monetized international markets.
Editor: looking ahead to the next year, what advice would you give to investors considering Pinterest in their portfolios?
Sarah Jennings: I would advise investors to consider Pinterest as a long-term investment. While there might be short-term volatility, the fundamentals show a promising growth trajectory, especially with international expansion and improved monetization strategies. Investors should stay focused on Pinterest’s unique position in the social media landscape and its potential for innovation. If you’re looking to diversify your portfolio with a stock that has solid growth prospects, Pinterest is definitely worth a closer look.
Editor: Thank you, Sarah, for your valuable insights on Pinterest’s stock performance and future outlook. Your analysis will surely assist our readers in making informed investment decisions.
Sarah Jennings: Thank you for having me! It’s been a pleasure discussing Pinterest with you.
