Pinterest Stock Looks Like A Solid Bet Following The Recent Pullback
Pinterest stock (NYSE: PINS) is down by about 20% from its February highs, trading at levels of around $71 per share currently. This sell-off was driven by a correction in high-growth stocks over the last few weeks amid fears of rising inflation and higher bond yields. However, we think that Pinterest looks like a good buy at current levels. Here’s why.
Pinterest continues to add new users quickly and is getting a lot better at monetizing its base. Over Q4 2020, Pinterest’s active user base grew by 37% year-over-year to 459 million and ARPUs in the U.S. jumped 49% year-over-year, driven by more “shoppable” content and improving advertising capabilities. The company also has a lot of room to scale up globally as international markets represent just 17% of total revenue. Growth should remain strong post-Covid-19 as well, given the company’s unique position in the social media space. Content on Pinterest is focused on projects, hobbies, products, and ideas that are more directly related to buying things. In comparison, platforms such as Facebook are focused on sharing personal information.
Now, although Pinterest stock trades at a relatively high 18x projected 2021 revenues, the company should grow into this valuation quickly. Pinterest’s total revenues are projected to grow by over 48% in 2021 and by about 35% next year, per consensus estimates. Margins – although less of a concern for companies in growth mode – are getting better and Pinterest appears to be on track to becoming a highly profitable company. For perspective, Adjusted EBITDA margins jumped from 19% in Q4 2019 to a solid 42% in Q4 2020.
- Why Did Zscaler Stock Crater 20%?
- What’s Happening With Delta Air Lines Stock?
- Why Did Merck Stock Rise 65%?
- Nio Stock Hits Accelerator With 14% Rise Post Q2 Results. Will the Momentum Continue?
- A 2x Comeback Is Possible For This Covid-Era Growth Stock That Crashed 80%
- Need For Returns: Ditch Electronic Arts Stock For Take-Two Interactive?
For more details on Pinterest’s historical performance, see our interactive dashboard Why Pinterest Stock Moved 4x since 2019
[2/8/2021] Overview Of Pinterest’s Q4 2020 Results
Pinterest (NYSE: PINS) had a solid 2020, with its stock rising by over 3x over the year, as the company was a big beneficiary of Covid-19 related stay-at-home orders, with people spending more time online. Now is the stock poised for further gains? It looks like it. Pinterest’s fundamentals are improving, with Q4 results coming in much stronger than expected. Revenue rose by about 76% year over year to $706 million and the monthly active user base grew by 37% year over year to 459 million. There’s still more room for growth. Pinterest’s audience is expanding beyond its core user base of women (who account for about 60% of users), with an increasing number of men, Gen Z, and Millennials embracing its platform. For example, in Q2 2020 the company reported that the number of men on Pinterest jumped nearly 50% year-over-year. The company has scope for growth in international markets, which represent just 17% of total revenue. Pinterest is also getting better at monetizing its users. Quarterly ARPUs in the U.S. jumped 49% year-over-year over Q4, and this should grow as the company focuses on more “shoppable” content and improves its ad capabilities. Despite the big run-up, Pinterest looks like a decent value. Although the company’s price to sales multiple has increased to a relatively steep 22x projected 2021 revenues, it is growing fast. Sales grew by 48% last year and are projected to grow by around 38% in 2021, per consensus. In comparison, Snap (NYSE:SNAP) is projected to grow by about 40% this year and trades at about 27x projected Revenue.
For more details on Pinterest’s historical performance, see our interactive dashboard Why Pinterest Stock Moved 4.5x since 2019
[12/22/2020] How Is Pinterest Stock Doing?
Back in August, we outlined how the stock of social media company Pinterest (NYSE: PINS) could realistically double over the next 3 years. Turns out, the stock has significantly surpassed our expectations rising by over 2x over the last 5 months alone. So what’s driving the surge and could Pinterest be poised for further gains? Let’s delve a little deeper into Pinterest’s recent performance, current valuation, and outlook.
For more details on Pinterest’s historical performance, see our interactive dashboard Pinterest Stock Grew 3.5x Since 2019. Here’s How.
Social media players have been big beneficiaries of Covid-19 and related stay at home orders as people spend more time online. As of Q3 2020, Pinterest’s Monthly Active Users base soared 37% year over year to 442 million, with total Revenues growing by about 58% year over year to about $443 million. Moreover, we think Pinterest has barely scratched the surface in terms of monetization of its user base. ARPU stood at roughly $1 globally during Q3, versus over $7 for Facebook (NASDAQ:FB) Now the content on the Pinterest platform is focused on projects, hobbies, products, and ideas that are more directly related to buying things, compared to other platforms such as Facebook which are focused on sharing personal information. For example, users who are looking at home improvement or planning a wedding are likely to head to Pinterest. This should make the platform highly valuable to marketers, driving future revenue, and earnings growth.
While Pinterest’s Price to sales multiple has expanded to over 25x projected 2020 Revenues (from about 15x during our last update in August), this is justified by the company’s stronger than expected growth in recent quarters (Revenue is likely to grow at over 40% over 2020 and 2021) and the fact that it is on track to post a small profit this year. Pinterest is also fairly valued compared to Snap (NYSE:SNAP), another fast-growing social media company – which trades at about 32x projected 2020 Revenue and is likely to post similar levels of growth.
[Updated 8/14/2020] Pinterest Stock In 2023
Pinterest (NYSE: PINS), a social media website that helps users discover new products and ideas, has seen its stock price rise by about 2x this year, with its market cap standing at roughly $21 billion. The stock now trades at about 14.5x projected 2020 revenues, despite the fact that the company is likely to just about break-even this year. Does this make the stock expensive? Probably not, considering that revenues could grow by close to 2.5x by 2023 if the company continues to execute well, with Net Income (profits after all expenses and taxes) jumping considerably, generating strong returns for shareholders.
Pinterest’s Revenues could grow by roughly 2.5x from estimated levels of a little over $1.45 billion in 2020 to close to $3.5 billion by 2023, representing a growth rate of roughly 34% per year (for context annual growth was over 55% between 2017 and 2019). There are multiple trends that support this continued growth. Firstly, Pinterest’s user base is soaring, with its monthly active users (MAUs) rising 39% to 416 million over Q2 2020 as the Coronavirus pandemic pushed more people online. Moreover, Pinterest has barely scratched the surface in terms of monetization of its user base, with quarterly ARPU standing at $0.70 globally during Q2, versus over $7 for Facebook. [1] The content on the Pinterest platform is focused on products, hobbies, and ideas that are more directly related to buying things, compared to other platforms such as Facebook which are focused on sharing personal information. This makes Pinterest more attractive to advertisers. The company has also been improving its technology to drive monetization, launching new tools such as automatic bidding – which makes it easier for advertisers to manage campaigns, and effectively spend more while adding more new shopping-related features for users. Separately, Facebook – which currently dominates the social media landscape – has been facing mounting pressure on anti-trust and privacy-related issues, and this could likely help Pinterest win over more business from more socially-conscious advertisers.
While we expect Pinterest to just about break even this year, the company could see profits pick up from 2021 onward as its ad revenues pick up sharply post the Coronavirus, and as the company’s past investments in technology and product development start to pay off. While Facebook posted Net Margins (Net income as a percentage of Revenue) of over 25% in the last fiscal year, the company is a dominant force in the ad markets, and it is probably not reasonable to expect similar margins of Pinterest. That being said, as Pinterest’s business gains scale, it should be able to boost margins to levels of around 15% by around 2023. Considering our revenue projections of roughly $3.5 billion and 15% margins, $525 million in Net Income is a real possibility by 2023.
Now if Pinterest’s Revenues expand by 2.5x, the P/S multiple will contract to roughly 0.4x its current level, assuming the stock price stays the same, correct? But that’s exactly what Pinterest investors are betting will not happen! If Revenues expand 2.5x over the next few years, instead of the P/S shrinking from around 14.5x presently to roughly 6x, a scenario where the P/S metric falls more modestly, perhaps to about 11x looks more likely. For context, the broader Internet sector traded at a forward P/S multiple of about 7x, while Facebook trades at roughly 9x. [2] It’s quite reasonable to assume that Pinterest will trade ahead of these companies considering that it’s likely earlier in the growth cycle, with a lot more scope for monetization. This would make growth in Pinterest stock price by about 80% a real possibility in the next three years, taking its market cap to over $38 billion ($3.5 billion in revenue at an 11x multiple). This would translate into a P/E multiple of about 73x based on our projected 2023 earnings for the company.
While Pinterest stock may have moved a lot, 2020 has also created many pricing discontinuities that can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Amazon vs Etsy. Another example is Apple vs Microsoft.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams