What’s the full picture for Pinterest’s share price?

Pinterest [PINS] reported a net loss of $124.7mn ($0.23 per share) for the three months to September 2019 – a huge increase from a $18.9mn reported in the previous period in 2018. Meanwhile, the company reported revenues of $279.7mn Q3, up from $190.2mn a year ago.

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However, this considerable revenue growth of around 47% was notably slower than the 62% growth reported in Q2, and the 54% in Q1. This revenue deceleration incited a 17% drop in Pinterest’s share price on Friday.

Rohit Kulkani, analyst at MKM Partners said that the company’s revenue not meeting expectations was “driven by slower than expected growth in monetization and largely in-line growth in number of users”.

In a letter to its shareholders, Pinterest noted that its Q3 growth “is compared to our most challenging year-ago comparison, particularly in the US.”

However, shareholders were less than impressed. The share price dropped to $20.86 on Friday (1 November) – close to the $19 price it floated at back in April, and a huge drop on a mid-August high of $36.83.

“There was a slowdown in US revenue growth and revenue per user growth. This is concerning because advertising is typically most valuable in the US,” said Morningstar analyst Ali Mogharabi, according to the Financial Times.

“There was a slowdown in US revenue growth and revenue per user growth. This is concerning because advertising is typically most valuable in the US” - Morningstar analyst Ali Mogharabi

Meanwhile, some found it difficult to distinguish Pinterest’s story from those of other struggling unicorns.

Douglas McIntyre writing in 24/7 Wall St accused co-founder and chief executive Ben Silbermann of violating the cardinal rule of internet company IPOs. “He was unable to grow his company fast enough. That, combined with incredible losses, throws Pinterest into the club of failed unicorns, the promise of which disappeared just as the company sold shares to the public.”

A prettier picture abroad

Despite the disappointing figures, Pinterest adjusted its annual revenue forecast to $1.1bn to $1.115bn, compared with previous expectations of $1.095 to $1.115bn.

As monthly active users, or pinners, in the US grew just 8% to 87 million, the number globally jumped 28% to 322 million to beat forecasts. Average revenue per user of $90 was just shy of the $91 prediction from FactSet.

In addition, its expectations of an annual net loss of between $10mn and $30mn, narrower than previous ranges of $25mn to $50mn.

Pinterest highlighted its international expansion drive with overseas revenues tripling to $28mn. International revenue – present in 28 territories - now accounts for over 10% of its revenue total, up from below 5% in the same period last year.

The number of international users rose 38% to 235 million, however it collected only $0.13 for every user over the period.

Pinterest said there remained a “significant opportunity” to grow the company in English-speaking countries and in Western Europe. It is also eyeing revenue growth through video ads and eCommerce features to allow users to buy products through its platform. Indeed, its video ad formats grew three-fold year-over-year.

Silbermann said that Pinterest was “building a lot of the back-end features to improve upload speed, client performance, and analytics”.

Pinterest share price vitals, Yahoo Finance, 04 November 2019

The bigger picture

The mood among analysts is also positive. The mean consensus according to MarketScreener is outperform, while the stock has an average target price of $30.16.

“At a price-to-sales ratio of about 16, the stock is highly valued,” said Motley Fool’s Jeremy Bowman. “But with a unique niche in social media and search, and a promising future, Pinterest has the potential to surprise even the bulls five years from now.”

The group could have 540 million monthly active users by 2024 and will likely also be profitable by that date, he noted.

Aaron Goldman, CMO at marketing technology company 4C Insights, pointed out how critical Pinterest has been to paid media plans with its “unique ability to incorporate brands into the app in a way that allows advertising to add value to the user experience.”

He said that marketers have been deriving results from Pinterest, from brand awareness to product purchase and to repeat sales. “In the third quarter advertisers running ads on Pinterest through 4C increased their spend by more than 80% year-over-year.”

Looking ahead, Goldman pointed the company’s eCommerce advertising format, expansion plans, and potential for new subscribers as providing “a ton of upside”.