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Pinterest (PINS) stands out as a unique and innovative stock in a digital landscape teeming with social media platforms, redefining how users discover, explore, and share ideas across diverse interests. It is the go-to platform for millions of users worldwide, covering everything from home decor, fashion, and travel destinations to recipes and tattoo designs.
Pinterest piqued investors' interest with another strong quarterly performance, driving its stock 28% higher year to date, compared to the S&P 500 Index's ($SPX) 18% gain. Analysts are also optimistic about the company's long-term prospects. Let’s take a look to see if this growth stock is worth pinning to your portfolio now.
What Is Pinterest?
Since its inception in 2010, this visual discovery engine has evolved into a social media powerhouse, captivating millions of users with its unique blend of inspiration, creativity, and utility.
Pinterest is more than just a social media platform; it's a vibrant community where like-minded individuals come together to share, collaborate, and inspire one another.
The company grew to great heights during the pandemic when the internet became the sole source to pass time amid the lockdown. However, it is impressive how Pinterest is successfully driving user engagement even in the post-pandemic market.
User Engagement Impressed in Q3
What has made the Pinterest platform popular are its group boards, which form a network among users - letting them share creativity, and fostering a sense of belonging within its user base. Based on the most recent quarterly results, this sense of belonging is driving user engagement.
Last year, Bill Ready took over the reins of the company as the new CEO. While investors were skeptical at first, the new management team seems to have turned things around during a patchy time when the advertising market was challenged.
Notably, in its recent third quarter, global monthly active users (MAUs) stood at 482 million - an increase of 8% year-over-year. Furthermore, the average revenue per user came in at $1.61. Total revenue jumped 11% to $763 million versus the prior-year quarter.
The company also swung to a profit, compared to a loss in the year-ago quarter, thanks to strong revenue growth and disciplined cost management. GAAP (generally accepted accounting principles) net income for the quarter came in at $7 million. Both revenue and earnings surpassed analysts’ estimates.
What’s particularly impressive is that Pinterest's margins are also improving. This metric arrived at 1% in Q3, much improved from a negative profit margin of 10% a year ago.
Upbeat Outlook for the Future
With artificial intelligence (AI) transforming industries, Pinterest has also dabbled in this cutting-edge technology, utilizing AI to personalize content recommendations across its boards. The social media company spent $265 million on research and development in Q3, while sales and marketing accounted for $226 million.
This highlights Pinterest's continued focus on improving its technology to boost user engagement and entice more advertisers. The company's financial health also looks good, with $1.17 billion in cash and cash equivalents at the end of the quarter.
Looking ahead, a strong quarter and rising user engagement resulted in an update to its Q4 guidance. With the holiday season in full swing, management now anticipates revenue growth of 11% to 13% year on year. This could imply revenue in the $973 million to $991 million range, indicating strong sequential growth as well.
Management also stated on the Q3 earnings call that the company plans to achieve a compounded annual revenue growth rate in the mid-to-high teens, along with adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) margins in the low 30% range, over the next three to five years.
Meanwhile, analysts also predict Pinterest's user engagement will drive revenue to be around $986 million in Q4. Analysts expect the company will once again swing to profits in the next quarter, too. On $3.06 billion in revenue, earnings per share could be around $1.05 for the full year.
Analysts predict revenue to increase 16% year-over-year in 2024 to $3.55 billion. Trading at six times forward 2024 projected sales, Pinterest seems like a fairly valued growth stock.
What Are Analysts Saying About PINS?
Overall, Wall Street rates PINS as a “moderate buy.” Out of the 24 analysts covering PINS, 16 have a “strong buy” recommendation, while eight suggest a “hold.”
Based on analysts' average price target of $35.05, Wall Street sees potential upside of about 12% over the next 12 months. The price target ranges from a high of $45 to a low of $25.
The Verdict
Pinterest's strategic focus on user-centric innovation, global expansion, and diverse offerings bodes well for the company's future. As the platform evolves and adapts, it has the potential to reshape how we discover, create, and connect in the digital age, boosting its revenue and profits.
This focus on long-term value creation aligns well with investors seeking sustainable growth opportunities, making PINS a good growth stock to buy and hold now.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
