Pinterest, Inc. (PINS), a social media platform that focuses on visual discovery, reported better-than-expected earnings for the third quarter of 2024, but the stock tumbled 15% on Nov. 7 as investors focused on the soft guidance for the next quarter. This crash presents an opportunity for long-term investors as the company continues to ramp up new product launches, boosting community engagement, which should eventually lead to higher monetization levels. I am bullish on the prospects for Pinterest, as I believe this social media platform has what it takes to grow profitably in the long run.
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Pinterest’s Soft Guidance Is Masking Its Improving Fundamentals
Pinterest’s soft Q4 guidance had a lot to do with the post-earnings dip of the stock. However, the company has made noteworthy progress on the profitability front in the past 12 months, which has not been appreciated by Mr. Market, as evidenced by the 10% decline in Pinterest stock during this period.
For Q3, Pinterest reported an 18% increase in revenue, average revenue per user growth of 5%, an adjusted EBITDA increase of 31%, global monthly active user growth of 11%, and adjusted EPS growth of 43%. All these metrics suggest Pinterest’s fundamentals are improving. For the trailing 12 months, Pinterest has generated a net profit of $215.8 million, in complete contrast to the losses of $35.6 million and $96 million reported in 2023 and 2022, respectively.
Pinterest’s AI Investments May Yield Handsome Returns
A major reason behind my bullish stance on Pinterest is the company’s aggressive investments in AI, which I believe will help the platform enjoy competitive advantages in the long run. In the last quarter, monthly active users reached an all-time high of 537 million, which is a testament to how AI investments are already yielding promising results. Over the past 18 months, the company has introduced several innovative products powered by AI, such as the collage feature, which allows users to create images using stickers, the auto-organizing feature, AI-powered search guides, and body type range searches to embrace inclusivity.
As a result of these new product launches, Pinterest now generates more than 400 million predictions per second by leveraging billions of data points to display content that users are highly likely to engage with. Higher engagement levels have opened doors for the company to monetize its user base better. In addition to improving the user experience, Pinterest is also using AI to improve its monetization levels through several initiatives. For instance, Pinterest launched the Performance+ suite last month and introduced innovative AI-driven tools for advertisers to get more bang for their buck. In early testing, Pinterest found that these tools improved both the cost per acquisition and the cost per click by 10%.
Pinterest’s all-around AI strategy, which focuses on both advertisers and platform users, is well-positioned to improve monetization levels meaningfully in the long run. As AI investments start improving the engagement levels on the platform, Pinterest is likely to attract and retain high-value advertisers.
PINS’ New Partnerships Will Accelerate Monetization
My bullish stance on Pinterest is further supported by the new partnerships the company has secured this year, positioning it for an acceleration in monetization levels in the future. For instance, Pinterest signed an agreement with VTEX, a composable commerce platform, to allow the latter’s global customers to engage on Pinterest by integrating their product catalogs. This is a massive step in the right direction for Pinterest as the company tries to tap into the growing social commerce market. According to Statista, Global Social Commerce revenue will surpass $1 trillion by 2028, growing at a CAGR of 14% between 2023 and 2028.
In addition, Pinterest finalized a sales partnership with DMS last July to expand its advertising solutions in the Middle East and North Africa, initially targeting countries such as the UAE, Bahrain, Egypt, Saudi Arabia, and Algeria. Through this partnership, Pinterest is aiming to monetize its international user base, which currently contributes negligibly to the company’s revenue. For context, in Q3, the rest of the world segment, which accounts for users outside of the U.S., Canada, and Europe, saw just 14 cents in average revenue per user compared to $7.31 in the U.S. and Canada.
Pinterest also expanded its partnership with Aleph to cover 11 new markets across Latin America and Asia, including India, Turkey, and Costa Rica. This partnership expansion will boost advertisers’ cross-border campaigning capabilities, making Pinterest an attractive option for businesses targeting a diverse customer base spread across the globe.
Is Pinterest a Buy, According to Wall Street Analysts?
Wall Street was divided on Pinterest’s Q3 performance. After digesting the company’s earnings beat, KeyBanc analyst Justin Patterson lowered his Pinterest price target from $45 to $39, citing the probability of the company missing its guidance set out at the Investor Day event. However, the analyst praised Pinterest’s improving engagement levels and new product launches. On the other hand, Wedbush Securities analysts upgraded Pinterest and assigned a $38 price target after commenting positively on the company’s monetization strategies and user engagement levels.
Based on the ratings of 24 Wall Street analysts, the average PINS price target is $39.88, which implies an upside potential of 41% from the current market price.
Pinterest may not be cheaply valued today at a forward P/E of 19.36, but I believe the company is well-positioned to see strong earnings growth in the next five years as its monetization strategy starts delivering the desired results. Therefore, I am comfortable maintaining a bullish stance on Pinterest as I believe the company’s valuation is reasonable from a long-term perspective.
Key Takeaway
Pinterest stock crashed following the Q3 earnings print, and I believe this presents an opportunity for long-term-oriented investors as the company is making solid progress with monetization, new product launches, AI integration, and advertising partnership expansions. The company’s current valuation seems to offer a reasonable entry point for investors with an extensive investment time horizon.
