Pinterest, Inc. PINS has declined 28.7% over the past three months against the industry’s growth of 5.2%. However, it has outperformed peers like Snap Inc. SNAP but lagged Meta Platforms, Inc. META over this period.
This Internet content provider that operates as a discovery platform relies heavily on advertising as its primary source of revenue. With a macro slowdown in the broader digital advertising domain, Pinterest is increasingly finding it difficult to sustain its growth momentum.
Three-Month Price Performance
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High Operating Expenses Erode PINS Profitability
Over the years, soaring operating expenses have dented Pinterest’s profitability. The company expects to incur considerably higher operating expenses in the near term for expanding operations domestically and internationally, enhancing product offerings, broadening Pinner and advertiser base, expanding marketing channels, hiring additional employees and developing technology. Increased infrastructure spending related to user and engagement growth is likely to result in higher cost of revenues. Non-GAAP operating expenses are likely to grow 17% to 20% year over year in third-quarter 2024 to $485-$500 million, driven by headcount growth, higher R&D, increased marketing and general and administrative expenses.
In addition, Pinterest faces significant competition from larger, more established companies such as Amazon, Facebook (including Instagram), Google, Snap and Twitter. These companies provide their users with a variety of online products, services, content (including video) and advertising offerings, including web search engines, social networks and other means of discovering, using or acquiring goods and services. PINS also faces competition from smaller firms, including Allrecipes, Houzz and Tastemade, which offer users engaging content and commerce opportunities through similar technology, products and features or services.
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Estimate Revision Trend of PINS
Pinterest is currently witnessing a downtrend in estimate revisions. Earnings estimates for PINS for 2024 have moved down 2.1% to $1.43 over the past 60 days, while the same for 2025 has decreased 2.3% to $1.72. The negative estimate revision portrays bearish sentiments about the stock’s growth potential.
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Key Valuation Metric of PINS
From a valuation standpoint, Pinterest appears to be relatively expensive compared to the industry but below its mean. Going by the price/sales ratio, the company shares currently trade at 5.32 forward sales, higher than 2.69 for the industry but lower than the stock’s mean of 6.9.
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Rising Engagement for PINS Platform Gaining Traction
Pinterest is taking various initiatives to bring more actionable content on the platform from a wide range of sources such as users, creators, publishers and retailers. This has resulted in a solid improvement in engagement metrics like sessions, impressions and saves across all regions. Healthy traction in emerging verticals like men’s fashion, auto, health and travel are tailwinds. Pinterest is increasingly establishing a unique value proposition to advertisers that could provide a competitive advantage in the long haul.
Rising engagement among Gen Z users is a positive factor as well. Management's decision to increase the accessibility of mobile deep linking (MDL) products to more advertisers has improved shoppability on the platform. The MDL solution is well-suited for retailers who are aiming to drive more purchases through their mobile app. This has significantly boosted shopping ads revenue generation.
The company’s focus on improving operational rigor and incorporation of sophisticated AI models to enhance relevancy and personalization is likely to bring long-term benefits. Pinterest is also emphasizing building new ad tools and formats to help grow the scope of monetization on the platform. This will enable advertisers to measure the results and conversion rates, which will improve their decision-making. It has partnered with Amazon.com, Inc. AMZN to further capitalize on the commercial intent of its user base and increase shoppability on its platform.
End Note
Pinterest is witnessing strong user engagement across all regions. Through third-party ad integration with Google, Pinterest aims to introduce monetization opportunities in several unmonetized international markets.
However, increasing competition from other video-centric consumer apps is likely to adversely impact user engagement to some extent. High operating expenses to expand operations and incorporate the latest technological innovations are expected to dent its profitability. It also appears to be trading at a relatively expensive level at the moment. The downtrend in estimate revisions and declining stock price performance further signifies bearish sentiments on the stock. With a Zacks Rank #4 (Sell), Pinterest appears to be lurking in the forsaken territory, and investors could be better off if they avoid this stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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