Pinterest Experiences a Slump due to Moderate Guidance. Could this Present a Chance to Purchase at a Discounted Price?
Over the past few months, Pinterest's shares (PINS 0.50%) have been struggling. The stock took a hit during the summer after the company projected slower revenue growth in their second-quarter results. The blow continued in the third quarter when investors disliked the company's fourth-quarter forecast.
Let's delve into Pinterest's most recent earnings and forecasts to see if this downturn presents a buying opportunity.
A underwhelming projection
Pinterest reported a 18% increase in revenue to $898.4 million in the third quarter. Although impressive, it represents a decrease in growth compared to the 23% increase in Q1 and 21% in Q2. The U.S. and Canada segment saw a 16% rise in revenue to $719 million, while Europe's revenue expanded by 20% to $137 million. Revenue from the rest of the world (ROW) jumped by 38% to $42 million.
Active users increased by 11% to 537 million, with a significant growth in ROW users by 16% to 300 million. U.S. and Canada users saw a 3% increase to 99 million, and European users rose by 8% to 139 million.
One crucial metric to examine is average revenue per user (ARPU), as Pinterest's potential lies in closing the gap with competitors and maximizing its user base monetization.
Overall, ARPU increased by 5% to $1.70, although it's more insightful to focus on regional trends due to significant ARPU variations among regions. In the U.S. and Canada, ARPU went up by 13% to $7.31, while European ARPU saw an 11% rise to $1. ARPU in the ROW segment surged by 18% to $0.14.
Regarding profits, Pinterest reported a 31% rise in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to $242 million. Adjusted earnings per share (EPS) soared by 43% to $0.40.
Pinterest projected Q4 revenue between $1.125 billion and $1.145 billion, representing a 15% to 17% year-over-year growth. However, this would signify a deceleration in revenue growth. The company has noticed weakness in the food and beverage vertical, which is expected to continue through Q4. Nevertheless, lower funnel revenue seems to be thriving.
Is this a golden opportunity to buy the dip?
For the second consecutive quarter, Pinterest stock declined on its forecast. Although the food and beverage vertical is encountering challenges and cutting back on advertising expenditures, there are still numerous positive aspects to consider at Pinterest.
Regional ARPU continues to grow steadily, and Pinterest is planning to expand its Amazon partnership into Canada and Mexico. Additionally, it's expanding its collaboration with Alphabet for emerging markets and partnering with resellers to boost sales in those regions. Lastly, it has made its Performance+ automation platform generally available to advertisers as of October, and plans to introduce Performance+ with ROAS in Q1 2022.
Currently, Pinterest is trading at around a forward price-to-earnings (P/E) ratio of 17 based on 2025 analyst estimates, making the stock an appealing buy considering its potential growth opportunities.
Although investors expressed dissatisfaction over Pinterest's decelerating growth, the stock's current valuation looks attractive. Furthermore, the company still has prospects to better monetize its users not just in the U.S., but also worldwide, in addition to Performance+, which might help reaccelerate revenue growth next year.
As a result, I think the fall in stock price represents a great chance to buy this growth stock.
Despite the company's decelerating revenue growth, Pinterest's projected Q4 revenue still represents a significant increase. In light of this, investing in Pinterest's stock could be considered as an opportunity to capitalize on its potential growth, given its forward price-to-earnings ratio of 17.
Furthermore, the company's strategic moves such as expanding its Amazon partnership and Performance+ platform suggest potential for increased monetization and revenue growth. Therefore, the current downturn in Pinterest's shares may present an appealing investment opportunity in the finance and investing sectors.
