It's been an interesting few years for Pinterest (NYSE: PINS). Its user base grew rapidly as the COVID-19 pandemic worsened in 2020 and 2021, and its stock soared to new all-time highs.
But over the past year or so, the return to (mostly) normal life has left people with less time to use social media platforms, and recession fears could cause advertisers to pump the brakes on spending. As a result, Pinterest's stock price has tumbled by 70% from the highs.
However, there are a few good reasons to be excited. For one thing, the decline in the user base we saw as COVID-19 restrictions relaxed appears to have been temporary, as the company reported user growth in the third quarter of 2022. More importantly, Pinterest has a new CEO with one major goal in mind: turn the company into a major e-commerce player.
Pinterest's business looks strong
We won't have fourth-quarter results from Pinterest for another week or so, but the third-quarter numbers from the social media company were surprisingly strong, and not just on the headline numbers.
For one thing, Pinterest added 12 million monthly active users in the third quarter, after three consecutive quarters of year-over-year declines. Average revenue per user (ARPU) grew by 11%, including 1% growth in U.S. user monetization, despite the difficult economic climate.
There's still quite a bit to be desired, however. Pinterest's monetization lags behind other social media rivals. And this is especially true overseas. The average North American Pinterest user generated $6.13 in revenue for the company in the third quarter, but the average user outside of North America and Europe produced just $0.11. More than half of the user base is in this category, so this is a big opportunity going forward.
Will the e-commerce strategy start to translate to revenue in 2023?
In the company's third-quarter conference call, Ready said that more than half of users surveyed view Pinterest as a place to shop, and that the company intends to make every product encountered on Pinterest to be shoppable.
The company has already released its API for shopping, which makes it easy for merchants to upload their catalogs, pricing, and inventory data. Pinterest's shopping ads (promoted catalogs) revenue grew 50% year over year in the third quarter, making this one of the highest-momentum parts of the business.
In addition to building its general product catalog, Pinterest plans to evolve its machine learning capabilities to produce a targeted, user-friendly shopping experience, and to build out its partnerships with retailers. The company also plans to build the functionality and conversion effectiveness of its advertising business. Pinterest has about $2.7 billion in cash and equivalents on the balance sheet, giving plenty of financial flexibility to invest in its e-commerce capabilities.
The third-quarter conference call was Ready's first, and as you can tell, it contained a pretty ambitious outline of the company's e-commerce plans. Ready also teased that there would be even more new strategy this year, saying, "I look forward to sharing more with you when we set our investor day in 2023."
So is Pinterest a buy?
As mentioned, Pinterest is a natural fit in the e-commerce landscape. And if management can successfully figure out not only where Pinterest's role in the e-commerce process is, but how to monetize it all over the world, the company's revenue could multiply several times over. That's not to mention what could happen with Pinterest's core advertising business if the recession that is widely predicted in 2023 turns out to not be as bad as feared.
In short, Pinterest is a profitable business with tons of (somewhat unclear) potential to grow. If we start to get some more clarity on how Bill Ready plans to pursue e-commerce growth in 2023, it could end up being a transformative year for Pinterest and its shareholders.
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Matthew Frankel, CFP® has positions in Pinterest. The Motley Fool has positions in and recommends Pinterest. The Motley Fool has a disclosure policy.
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