Every earnings season has its share of sell-the-news reactions that punish good stocks despite reporting solid earnings reports. The market is known to overreact as selling begets more selling, just as buying begets more buying. When the smoke clears, some stocks become buy-the-dip opportunities after looking under the hood and beyond the initial reaction.
Here are two stocks in the computer and technology sector that are offering buy-the-dip entries as the market overreacts with sell-the-news reactions.
Pinterest: A Grower, Not a Show-er
Social commerce platform Pinterest Inc. (NYSE: PINS) stock sold off 14% on an otherwise solid third-quarter 2024 earnings report. Pinterest had the unlucky timing of reporting earnings after the bar was raised by strong earnings performance from social media platforms Meta Platforms Inc. (NASDAQ: META), Alphabet Inc. (NASDAQ: GOOGL) and even Snap Inc. (NYSE: SNAP).
Solid Growth and Profits in Q3
In its third quarter of 2024, Pinterest reported EPS of 40 cents, beating consensus estimates by 6 cents. GAAP net income was $31 million, while adjusted EBITDA was $243 million. Revenues rose a healthy 18% YoY to $898.37 million, beating consensus estimates for $896.89 million. Global monthly active users (MAUs) rose 11% YoY to a record 537 million.
AI Is a Pay-Now-and-Gain-Later Investment
Pinterest continues to invest in AI capabilities to boost user engagement and smoothen their buying experience. Average revenue per user (ARPU) grew 5% YoY to $1.70. Pinterest's platform is unique in that people go to the site to discover new ideas and often spend money on items that embody them. It’s a frictionless soft sell that organically materializes, and advertisers are keen on it.
However, Pinterest noted that ad pricing had declined due to its monetization efforts in international markets. Also, international ARPU at $1.70 is a mere fraction of the ARPU in the US and Canada at $7.31. The 150 bps drop in adjusted EBITDA margin results from its AI investment.
Here's How AI Generates More Engagement and More Advertising
The investment will pay off, as new capabilities will help extend user engagement and improve the customer journey. Pinterest continues to grow its Gen-Z user base, which is the most likely to be positively impacted by AI enhancements as they are the real digital nomads. Of weekly Gen-Z pinners, 66% claim that Pinterest is their go-to site to shop first, which is up 54% YoY.
AI Models Generate 400 Billion Predictions Per Second
Utilizing billions of user interactions such as clicks, saves, and searches, Pinterest's AI models generate over 400 million predictions to develop personalized recommendations that enable them to discover emerging trends and new brands. So far, it has translated to a 300 bps improvement in actionable engagements.
This has directly resulted in taking a larger share of the advertising budget spent with brands and agencies. Pinterest also has the potential as an acquisition target for a larger e-commerce player or social media platform looking to bolster its social commerce segment.
Block Inc: Multiple Ecosystems Generating a Financial Cumulative Effect
Digital ecosystems holding company Block Inc. (NYSE: SQ) shares initially tumbled 11% following its Q3 earnings release but rebounded quickly, aided by the surge in spot bitcoin prices. Block is comprised of mainly two ecosystems: the Square payment processing network of merchants and sellers and CashApp peer-2-peer (P2P) money transfer network with financial services including a digital bank, digital lending with the Cash App Borrow service, digital wallet, debit card, bitcoin trading and Afterpay, its buy-now-pay-later (BNPL) service that competes with Affirm Holding Inc. (NASDAQ: AFRM).
The Cash App Ecosystem Is Still the Growth Engine
Block reported Q3 2024 EPS of 88 cents, matching consensus estimates. Revenues rose 6.4% YoY To $5.98 billion, falling short of $6.24 billion consensus estimates. Square gross payment volume (GPV) rose 7.5% YoY to $59.6 billion. US markets GPV grew 4.9% YoY, and international markets grew 20% YoY. Cash App Card active users rose 11% YoY to 24 million.
Impressive Afterpay Metrics Uncovered
Afterpay users who have been on the platform for five or more years transact 31x per year on average compared to the 4X for those joining in the past year. This underscores how customers become more engaged with Afterpay as they use the service and get familiar with it over time.
Afterpay has also driven more than 460 million leans to merchants and has become a key driver of advertising revenue for Block, driven by 138 million consumer visits to the Afterpay app. Block shares can see a surge into 2025 on the bitcoin rally and the holiday shopping season boosting Afterpay’s business.
Block CEO Jack Doherty commented on the cumulative effect in their shareholder letter, “We believe our approach to lending is unique in the industry. Square Loans, Afterpay, and Cash App Borrow are powerful ideas that work for customers and investors.
Taken together, we believe they provide Block with a lending ecosystem that can increase access to multiple customer types and grow both sides of the counter, all at a scale that’s unmatched in the industry.”
The article "2 Tech Stock Bargains Offering Buy the Dip Opportunities" first appeared on MarketBeat.
