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What a brutal six months it’s been for Pinterest. The stock has dropped 22.9% and now trades at $24.64, rattling many shareholders. This might have investors contemplating their next move.
Given the weaker price action, is now the time to buy PINS? Find out in our full research report, it’s free.
Why Does Pinterest Spark Debate?
Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.
Two Positive Attributes:
1. Monthly Active Users Drive Additional Growth Opportunities
As a social network, Pinterest generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.
Over the last two years, Pinterest’s monthly active users, a key performance metric for the company, increased by 10% annually to 553 million in the latest quarter. This growth rate is solid for a consumer internet business and indicates people are excited about its offerings.
2. EBITDA Margin Reveals a Well-Run Organization
Operating income is often evaluated to assess a company’s underlying profitability. In a similar vein, EBITDA is used to analyze consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a clearer view of the business’s profit potential.
Pinterest has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 26%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
One Reason to be Careful:
Growth in Customer Spending Lags Peers
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Pinterest’s audience and its ad-targeting capabilities.
Pinterest’s ARPU growth has been mediocre over the last two years, averaging 4.2%. This isn’t great, but the increase in monthly active users is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Pinterest tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.
Final Judgment
Pinterest’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 13.8× forward EV-to-EBITDA (or $24.64 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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