Pinterest stock dropped to a 10-week low in early August after recently reporting second-quarter results that soundly beat estimates but fell well below user-growth expectations.
Monthly active users on Pinterest (PINS) dropped because engagement waned as Covid-19 restrictions were lifted and consumers ventured outside. It was the second quarter in a row of a slowdown in user growth connected to the Covid-19 recovery.
Pinterest ended the quarter with 454 million monthly active users, below expectations of 482 million. Moreover, it said that as of July 27, U.S. monthly active users and international users have declined approximately 7% and 5% year over year.
Pinterest stock plunged 7% in reaction to the earnings, though it initially fell more than 15%.
“The evolution of the Covid-19 pandemic and related restrictions remain unknown,” Chief Executive Ben Silbermann said in written remarks with the earnings release.
The company did not provide estimates for monthly active users for its third quarter due to the unknown impact of Covid-19 variants.
Our second quarter results reflect both the strength of our business and the recent shift in consumer behavior we’ve seen as people spend less time at home,” he said. “We continue to navigate uncertainty given the ongoing Covid-19 pandemic and other factors.”
For its second quarter overall, Pinterest reported adjusted earnings of 25 cents a share on revenue of $613 million. Analysts expected Pinterest to report earnings of 13 cents a share on revenue of $562.2 million
The company was founded in 2010 by Silbermann, a former employee of Alphabet‘s (GOOGL) Google unit. He was joined by former Facebook (FB) product designer Evan Sharp. They created an internet application where users can browse millions of images and videos posted by Pinterest users.
A Website For Ideas, Inspiration
Pinterest is not a social media experience like Facebook, Snap (SNAP) and Twitter (TWTR). It’s considered more of a personal experience. When users come to Pinterest, often they are trying to find or accomplish something. The site can help with generating ideas or inspiration on a wide range of activities.
In addition, Pinterest has developed methods for image searches that leverage machine learning, computer vision and a recommendation engine to help users search, browse and organize images and videos.
The company held its initial public offering in April 2019 that priced PINS stock at 19, raising $1.4 billion with a valuation above $12 billion.
“Monthly active users continue to miss Street forecasts, which elevates the debate on whether U.S. MAU growth has peaked,” KeyBanc Capital Markets analyst Justin Patterson wrote in a note to clients.
“While we expect this debate could continue, two things are clear,” Patterson said. “That is, monetization remains robust and profit margins are intrinsically high. As new products ramp we believe PINS can sustain at least low-30% revenue growth in 2022.”
Patterson maintained a rating of overweight on Pinterest stock but cut his price target to 75, from 89.
An Attractive Venue For Advertisers
Pinterest is an attractive venue for advertisers, the source of all its revenue. It does not take a cut of the sales made through its site. Pinterest also provides a platform for businesses to build their brands and drive sales. It’s also investing in automation to make it easier for advertisers to use Pinterest and scale spending.
“As digital ad spending continues to recover and Pinterest pulls new growth levers, we believe the company has positioned itself well in the long term to benefit from its unique franchise in the consumer internet world that offers advertisers an attractive value proposition,” Monness Crespi Hardt analyst Brian White wrote in his note to clients.
“We continue to like the long-term story at Pinterest,” UBS John Hodulik said in a note. “With that said, post-Covid engagement trends are a clear concern.” He maintained a buy rating on PINS stock.
Pinterest Stock Technical Analysis
The IBD Stock Checkup tool shows that Pinterest currently has an IBD Composite Rating of 75. That’s down from 96 prior to its earnings report. The rating means Pinterest stock currently outperforms 75% of all stocks. That’s in terms of the most important fundamental and technical stock-picking criteria.
PINS stock has a Relative Strength Rating of fell to 48, from 87. The rating shows how a stock’s price performance over the prior 52 weeks holds up against all the other stocks in IBD’s database. Look for stocks with a rating of 80 or higher.
PINS stock has an Accumulation/Distribution Rating of D. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. A grade of A signals heavy institutional buying. The lowest rating of E means heavy selling. Think of the C grade as neutral.
However, Pinterest’s relative strength line has plunged, which is a negative signal. A stock’s relative strength line compares the stock’s daily price performance to the S&P 500. An upward-sloping RS line means the stock is outperforming the S&P 500. A downward-sloping line means the stock is lagging the S&P 500.
Is PINS Stock A Buy?
With the stock plunge following its earnings report, Pinterest stock is currently not a buy.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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