Stock Prices on Pinterest Plummet by 12% Following Earnings Release: Is This a Warning Sign or a Chance to Invest?
In a remarkable quarter, Pinterest added 8 million new users, nearly doubling the projected number, bringing the total number of monthly active users worldwide to 578 million. This growth was evident in all three geographical segments the company reports: U.S & Canada, Europe, and Rest of World.
The social media platform's financial performance was equally impressive, reporting a 17% year-over-year growth in top-line revenue, exceeding analysts' expectations. Monetization of the user base is progressing nicely, especially outside of the U.S., where Average Revenue Per User (ARPU) from European users grew by 26%.
Pinterest's financial flexibility is robust, thanks to its current cash reserves and reduced share count, which has decreased by almost 3% over the past year due to buybacks. This financial strength positions the company well to take advantage of future opportunities.
Despite missing earnings per share (EPS) estimates by two cents, the long-term thesis for Pinterest remains intact, according to the author. The author often views opportunities to buy shares of their favourite companies when they miss earnings by a small margin and the stock price falls significantly.
The author, who already has Pinterest as one of their largest investments, is unlikely to add shares anytime soon. However, the author considers it a good time to take a closer look at Pinterest if one believes in the short-lived nature of tariff effects on ad demand.
The management's concerns over tariffs, specifically the end of the de minimis exemption to tariffs affecting Asia-based e-commerce retailers, have been a cause for concern. These concerns were initially reflected in the stock price, which declined about 12% in Q1 2021 despite revenue growth and user increases.
However, the tariff effects may be more of a short-lived problem than a permanent drag on ad demand, according to the author's belief. Pinterest has $2.66 billion in cash and marketable securities on its balance sheet, an increase of nearly $150 million from a year ago, further cushioning it against any potential financial impacts.
In the Rest of World group, Pinterest generated 44% more revenue than it did a year ago, indicating promising growth opportunities in emerging markets. Despite this, the average user in the Rest of World group still generates less than 3% of the revenue that a typical U.S. user brings in, suggesting room for further growth and monetisation in these regions.
In conclusion, Pinterest's impressive user growth and revenue boost, coupled with its financial strength, position it well for the future. The management's focus on international growth and monetisation, as well as its efforts to navigate tariff challenges, are all positive indicators for the company's continued success.
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