Pinterest (PINS) reported its Q1 2024 results on April 30 after the markets closed. They were better than expected, with revenues and earnings beating analyst expectations.
On the top line, it had revenue of $740 million in the quarter, 23% higher than a year earlier, with a growth rate almost double its 12% increase in Q4 2023. On the bottom line, it earned $139.5 million non-GAAP, 142% higher than a year earlier.
Analysts expected first-quarter revenue and earnings per share to be $700 million and 13 cents, respectively. It beat those by 5.7% and 53.8%, indicating that its business is doing better than Wall Street thought.
Fast forward to Tuesday’s results. Investors liked them a lot. Its shares jumped 21% in Wednesday’s trading. It now trades above $40 for the first time since February. Before that, you have to go back to December 2021. Earlier in 2021, it hit an all-time high of $89.90.
As a result of its earnings announcement, Pinterest had 15 unusually active options on Wednesday—defined as a Vol/OI ratio of 1.25 or higher, excluding any calls and puts expiring on Friday—that caught my interest.
If you’re bullish on PINS, as I am, here is a call/put combo that looks interesting based on yesterday’s action.
Why I’m Bullish
I’ve long been enthusiastic about Pinterest stock. I suggested in February that it wasn’t too late to buy PINS stock despite it hitting a 52-week high for the 30th time over the past year.
In June 2023, I shared positive commentary about the company and its stock.
“In the first quarter of fiscal 2023, Pinterest’s global monthly active users (MAUs) increased 7% year-over-year to 463 million, with much of the growth outside the U.S.,” I wrote on Barchart.com.
“With $2.7 billion in cash and marketable securities on its balance sheet, no long-term debt, and positive cash flow generation, it can take its ad business to the next level.”
Despite arguably having a more robust business today than in 2021, it trades at less than half what it did in 2021. Given its future potential, I’ve always felt it was an underappreciated stock.
According to Barchart analyst ratings data, 29 cover PINS, with 21 rating it a Buy (4.38 out of 5), with a target price of $40.93, just slightly above where it’s currently trading.
Analysts are very careful about target price increases right now. The S&P 500 is working on its ninth year in positive territory over the last 11. There’s no question some stocks have gotten ahead of themselves. Nvidia (NVDA) could be considered one of these runaway stocks.
I’ve always felt that if Pinterest continued to grow its ad business while expanding its international business and the money it makes from each user outside the U.S., its share would take care of itself.
Addressing These 2 Items
In Pinterest’s first quarter conference call with analysts, CEO Bill Ready addressed the company’s growth strategy, which it laid out last fall at its first Investor Day.
“First, growing users and deepening engagement per user; second, continuing to increase ad load driven by the synergies between our users' strong commercial intent and relevant ads; third, executing on our lower funnel revenue opportunity; and finally, driving demand through third-party partners, resellers and international markets as additional levers to growth,” Ready stated.
“Our results in Q1 are a testament to how each of these initiatives are performing as we expected or better.”
In Q1, it hit 518 million MAUs (monthly active users), 12% higher than Q1 2023 and 4% above Q4 2023. Nearly 81% of its MAUs are outside the U.S. and Canada. While it struggles with average revenue per user (ARPU) outside its core market, it’s going in the right direction. Europe’s ARPU was $0.86, 17% higher than a year ago, while the rest of the world was $0.11, 8% higher. It has 279 million MAUs in the rest of the world. If it ever figures this out, forget $80; its share price will be in triple digits.
Ready addressed its ads business in the conference call. Specifically, he suggested its third-party (3P) ad program with Amazon Ads in the U.S. and Google outside North America was progressing nicely. Further, it uses its 3P and 1P (first party) together to fill in gaps in the auction process for selling ads.
“On the third-party side of it, 3P is doing exactly what we expected it to do. And if you step back, when we introduced 3P about a year ago, we were excited to announce our first third-party partnership with Amazon Ads then,” Ready answered an analyst’s question on the subject.
“And when we first introduced 3P, we talked about the opportunity for 3P to work in parallel with 1P to round out gaps in our auction, leading to greater relevancy and shopability for our users and ultimately improve monetization.”
Like Colonel John “Hannibal” Smith said in The A-Team, “I love it when a plan comes together.”
The Unusually Active Options Combo
As I said, 15 unusually active options on Wednesday expire after Friday with a Vol/OI ratio of 1.25 or greater. Nine were calls, and six were puts. Four options had 78 days to expiration, the highest number of any future date.
I’m looking at the Aug. 16 $39 put and the July 19 $42 call. The former has 106 days to expiration, while the latter is 78.
If you were to buy the put and call, your total outlay would be $507. That works out to a down payment of 6.3% for both options. Your downside is protected at $39, but you wouldn’t make any money on the put unless its shares fell below $36.01.
On the upside, you’d consider exercising your right to buy if the shares hit $44.08, 9% higher than where it’s currently trading. You’d double your money if the shares rose by $4.65 (11.5%) before expiring in 11 weeks.
If you’re bullish on Pinterest stock, you’ll likely opt to buy its shares in July at expiration. If that happens, your total outlay would be $208 for the call, $4,200 for 100 PINS shares, and $299 for the put that expires worthless.
As I’ve said many times, I would never consider myself an options specialist, so this might not be what you might do, but it’s worth evaluating.
Either way, I remain bullish about Pinterest’s future.
On the date of publication, Will Ashworth 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.
