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Pinterest Could Be A Winner For 2022

seekingalpha2021-12-27

Summary Down 43% YTD and 58% off its recent high, Pinterest is severely beaten but on track to generate FY21 $2.6 billion in revenue with a fortress balance sheet. Went public at $12.3 billion market...

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Felixmc9999
·2021-12-28
Well written article. Also, is there any chance Pinterest will collaborate with PayPal?
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The Q2-2021 results showed a -5% reduction Y/Y in its US user base and a total growth in MAU of 9% driven by 13% growth internationally, but with the international segment reporting a much lower revenue per user. I slapped a bullish rating on Pinterest at that point in time, but since then, the stock nosedived an additional 20%. Ouch!\nThat article covered the relevance of Pinterest, its strong financial performance, and potential runway ahead. That was just two months ago, so as a reader, you should consider this an extension of that article given that much has happened since then. This article will focus on diving into the numbers to give some perspective, with the significant headlines in recent months include:\n\nThe US userbase continues to contract (minus 10% Y/Y US MAU contraction Q3-2021)\nRumours concerning a potential PayPal (PYPL) takeover of Pinterest at $70 per share - potential deal failed\nContinuedinsider selling(Nine straight quarters of selling and no buying)\n\nPinterest belongs in the basket of high growth innovative tech stocks, where the valuation is typically high and the margin for error is slim if management wants to avoid being punished by the market. The two most important metrics published by the company are the MAU and ARPU (Average Revenue Per User). I don't personally believe the development is as poor as the stock price movement could indicate.\nQ3-2021 MAU & ARPU\nBefore going into the actual quarterly results, I've put together the development for both metrics since 2018 to exhibit the development as opposed to comparing to the Y/Y numerical development alone, which we will get to in a minute.\nAuthors own creation with data from quarterly earnings reports\nEvidently, the growth has come to a complete halt and stands in stark contrast to what investors could expect only a few quarters ago - quite dramatic taking the long-term development into consideration. Herein lies the reason for the negative 45% return YTD for the stock price with the growth having slowed down much quicker than anyone could have anticipated. Many, including myself, have been operating under the assumption that the Covid-19 growth gush would slow as it wasn't sustainable, but at this point in time, it seems more like it rammed into a brick wall.\nI do however believe, it is needed to put the development into context. If we rewind the clock to early 2020 during the onset of Covid-19, we can observe a significant upwards spike in MAUs that was never going to be sustainable. Spring of 2021 marked the return to an outdoor life reviving the competition for MAUs' spare time and attention that hadn't existed for an extended period. The same way the exceptional development during 2020 wasn't going to last, the same way I doubt that Pinterest is done growing.\nNaturally, management inserts an 'asterisk' whenever they touch the development of MAUs these days, simply saying that the evolution of Covid-19 and its impact on MAUs remain unknown, which is also a source of uncertainty for investors and a dangerous strategy if you ask me, but also that management believes growth opportunities remain intact. Within the Q3-2021 letter to shareholders, management had the following to say\n\n \"We believe the slowdown in growth in Q3 was due to the continued pandemic unwind in the U.S. and in international markets which caused weakness in our core at-home use cases, Gen Z returning back to school, and search algorithm changes… As lockdowns eased, people have embraced life outside their homes, a trend that caused a dramatic decline of our year-over-year growth rate of monthly active users (MAUs) in Q2 and Q3, as consumer preferences shifted away from our core at-home use cases. Looking beyond the COVID-19-driven volatility, our \n current view on the long-term opportunity to grow our user base, both in the US and globally, remains unchanged from what it was before the pandemic.\"\n\nDuring the earnings call, CEO Benjamin Silbermann also gave a response to a question concerning how management strives to re-attract those that had a one-time use during the pandemic for an individual project.\n\n \"…unlike more social service where you engage with it almost daily to talk to your friends, Pinterest is something that you might come in, use it for a product, a project and then you may pause. And historically, we've seen a lot of our users use it for a period of time and then come back…\"\n\nWithin this response, Silbermann also touches upon a significant difference between social media platforms like Instagram and Facebook(NASDAQ:FB)compared to Pinterest. Users visit IG or FB to look at people (friends, family, colleagues, celebrities, etc.), while they go to Pinterest for inspiration. Inspiration for the next DIY project, travel location, fashion trend, home décor, you name it, which also means that usage should be a bit lumpier. This underlines the thesis that the userbase spiked during the early periods of Covid-19 where we were all locked up and sought inspiration for new activities, DIY projects, etc.\nFurthermore, it also means that ads don't reduce the user experience to the same extent it does when browsing FB or IG. In that regard, Pinterest becomes a search-social hybrid. I think this is important to keep in mind, as it supports stronger monetisation of the userbase by the fact that viral or particularly popular themes or pins, should be able to drive strong revenue via value-adding ads. Discussing the concept of Pinterest with family and friends, the avid users always circle back to the convenience of being able to pick up the item you are spotting in a pin.\nThis also reveals itself in the composition of the userbase which has been leaning heavily towards the female audience, leaving a significant untapped potential within the male userbase which could add to Pinterest's grasp as time passes and it moves up the ranks of most used social platforms. I don't see why Pinterest shouldn't be able to drive strong engagement with the male audience as time passes.\n\nIn my previous article, I listed some of the interesting metrics that cause me to label Pinterest a higher quality social media platform than the famous peers such as IG or FB, I'll take the liberty to list them once more.\n\nPinterest is great for planning life moments. 85% of women use Pinterest to plan life moments compared to 44% for Instagram.\nIn the US, Pinterest can reach 83% of females aged between 35 - 54 years of age. This same audience accounts for 80% of the buying decisions in US homes.\n1 in 2 people make a purchase after seeing a promoted pin\n78% of users say content from brands is useful, including ads\nMillennials claim that Pinterest inspires them to make dreams a reality, more so than any other platform.\n90% of users agree that Pinterest is \"filled with positivity\" and the platform is doing its best to keep it that way.\n\nOf the points above, I personally find great value in learning that users find the platform inspirational and positive more so than the alternatives. Why? In a time of mindless scrolling, I, as a fellow millennial, am hearing more and more people share how they are tired of feeling conned by platforms that don't add value or positivity to the user experience. While it is a highly intangible statistic, I do find it speaks in favour of Pinterest's relevance and potential longevity.\nHowever, no matter the arguments, it inevitably talks into the immediately disappointing development for MAUs when comparing Y/Y, as visible from the Q3-2021 earnings presentation. If I were to try and find a bit of light in the darkness, it would be that despite the growth having come to a halt on Y/Y basis, if we compare 2Y/Y, then MAU is growing by 38%.\nWhile management believes there is still plenty of growth left and that I can identify interesting nuggets suggesting that there is more to Pinterest than meets the eye at this moment, I can't deny that MAUs is the fuel that drives the revenue of Pinterest which therefore also warrants a strong response from the investment community. Question, however, is if one can hold through the pain while allowing for the long-term thesis to unfold. Clearly, Pinterest strikes a chord with millions of people, and why shouldn't it continue to do so as it expands its reach.\nTo be very blunt, no investor, main street or Wall Street enjoys seeing the growth disappearing entirely, and if the current picture continues into the coming quarters, then we could expect more pain coming the way of the stock price and valuation.\nQ3-2021 earnings presentation, p. 4.\nARPU Development\nSpeaking of the revenue, let's have a look at how the ARPU has developed.\nAuthor's own creation with data from quarterly earnings reports\nDespite the lacklustre development within MAUs, ARPU kept growing strongly with an impressive 37% (44% for US and 81% Internationally). This speaks strongly in favour of how Pinterest is leveraging the level of engagement, especially in comparison to weak MAU numbers. Here is the key to profitability for Pinterest, and as such, it's immensely important to monitor and for management to keep growing. As seen with other platforms, monetisation is and will remain higher with the US audience compared to Europe or international on a broad spectrum, which is also why the negative MAU growth for US is such a problem in the eyes of many investors.\nQ3-2021 earnings presentation, p. 5.\nThere is significant difference underlying these numbers as ARPU for the US userbase is significantly higher at $5.55 per user compared to $0.38 for the International audience. The difference stems from a vast gap across geographies. Meta Platforms, the owner of Facebook, provides a more detailed breakdown, where the ARPU worldwide is $10.00 for Q3-2021 while the ARPU for US & Canada is $52.34, for Europe $16.5, Asia-Pacific $4.3, and Rest of World $3.14. Of that $10.00, $0.25 stems from 'other' while the $9.75 is advertising revenue, meaning that 97.5% of FB's ARPU is advertising.\nIn fact, if I present the exact same ARPU visualisation for Facebook to compare to Pinterest, we see a very different growth profile, but also one where we see the Covid-19 effects. Facebook has been more consistent, also speaking to the words of Silbermann, that users may not visit every day or week in the case of Pinterest.\nAuthor's own creation with data from quarterly earnings reports\nFacebook drives a much higher ARPU but is also a much more mature platform. It's tempting to draw a straight line between the numbers of FB and those of Pinterest, but whether Pinterest can reach anything remotely similar to those numbers remains to be known, but given the strong growth of its ARPU, it is evident that it's moving in the right direction, as especially the international ARPU came in an impressive 81% Y/Y.\nWhat will have to drive that continuous expansion for Pinterest is a mixture of innovation and relevance of the platform. They need to ensure Pinterest is \"shoppable\" for the users.\nAs investors we can't simply observe a company on a quarter-to-quarter basis, so we have to zoom out, and as every shareholder letter comes to light, I see management continue driving a concentrated effort in making the platform more shoppable. In my previous article, I briefly mentioned that Q2-2021 saw a massive expansion in the catalogue items and a focus on the mutually beneficial Shopify (SHOP)partnership where Shopify merchants can ensure placement of their products in front of the Pinterest audience. Concerning the shoppable journey, management had the following to say duringQ3-2021.\n\n \" \n Specifically, purchases often help make dreams come to life, so we've been working to make Pinterest more shoppable. Even though we've made progress over the past two years, we're still relatively early in this journey…We believe it became easier than ever to discover and shop for products on Pinterest during Q3. Overall product searches were up over 100% year over year, and searches on the Shop tab by Gen Z Pinners have increased over 200% year over year. Our new shopping list feature for boards is seeing traction, and our price drop notifications are opened at a high rate. Finally, we began testing a more seamless checkout experience in the US in Q4.\"\n\nOn top, management launched a series of new initiatives during the quarter:\n\nWatch Tab: A vertical video function similar to the one found in Snap. The functionality is meant to drive engagement and relevance for the user experience. Maybe an arena in which Pinterest has lacked in comparison to peers such as Snap(NYSE:SNAP)or Facebook, where video is already a strong feature, but which should also support ARPU growth.\nPinterest TV: Pinterest wants to become the home for the next generation of creators and launched this initiative back in November. In a blend of entertainment and instant purchasing, this initiative has proved immensely successful elsewhere. Alibaba (BABA) first pioneered this concept back in 2016, and McKinseydubbedit the next wave of the e-commerce revolution. In conjunction with major events, such as Valentine's day, a Gen-Z celebrity could host an episode where products are on promotion, which has proven to drivestrong sales in China, while growing in other markets also.\n\nInnovation power remains strong with Pinterest, and new initiatives pop up that seem to have relevance in terms of deepening both retention and monetisation of the userbase by continuously adding relevant functionalities and new features.\nWhile MAU growth has undoubtedly seen disappointment, management continues to improve ARPU with very strong growth. There will be strong comps to beat in the next calendar year, with analyst consensus suggesting 26.5% revenue growth for 2022 and 30% for 2023. With a current P/S ratio of 9.5, this would result in a P/S ratio of 5.8 by end of FY2023. Given that management is very clear in saying that the shoppability of Pinterest is still in its early phase, I expect that revenue can expand significantly from here on, and having 450 million users on your books is no small feat.\nClosing Remarks\nI think the management team is doing many things right, especially in the sphere of product innovation, but I perceive the continued lack of real communication concerning outlook for MAU to be a fault. I accept the difficulty in doing so, but I strongly believe the share price is suffering as a result. Investors are left in the dark and consider uncertainty pure poison. However, that uncertainty also gives opportunity for those who are strong believers in the potential for Pinterest going forward.\nPinterest went public back in 2019 at a $12.6 billion market cap upon having posted FY2018 revenue of $755 million. Today, the company is valued at a market cap of $24.4 billion while showing a TTM revenue of $2.44 billion, on track to cross $2.6 billion for FY2021 combined with significant growth in both MAU and ARPU since going public.\nData byYCharts\nThe company is generating strong cash flows from operations and sits on a balance sheet with $189 million in debt, holding $2.3 billion in cash, allowing management a lot of flexibility to continue the journey of driving ARPU as also seen by its recent Vochi acquisition.\nIn my previous article, I tried to anchor the current valuation to Snap as somewhat comparable platforms, illustrating that Pinterest was suffering in comparison, I continue to hold that opinion as Snap trades at a forward P/S ratio of 19.5 in comparison to 9.5 for Pinterest. Not to say that Pinterest should be valued at a forward P/S ratio of 19.5, but that the company is trading at a very fair valuation seen from multiple angles, while also being a higher quality platform seen from my vantage point.\nData byYCharts\nPinterest currently trades almost 60% off its recent high and it should indeed trade far from its recent high given the MAU development, but as far as I see, Pinterest is in a much healthier place than back when it went public with stronger clarity for the ARPU outlook, but not with a valuation matching that picture. I continue to stay long Pinterest.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":696116663,"gmtCreate":1640649394059,"gmtModify":1640649394168,"author":{"id":"4097752709229510","authorId":"4097752709229510","name":"Felixmc9999","avatar":"https://static.tigerbbs.com/3bb594e293cdff97b357441dc2a49ebc","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"4097752709229510","idStr":"4097752709229510"},"htmlText":"Well written article. Also, is there any chance Pinterest will collaborate with PayPal?&nbsp;","listText":"Well written article. Also, is there any chance Pinterest will collaborate with PayPal?&nbsp;","text":"Well written article. Also, is there any chance Pinterest will collaborate with PayPal?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/696116663","repostId":1160732619,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":12,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}