Pinterest's (PINS 1.47%) stock surged 21% on May 1 after the social media company posted its first quarter earnings report. Its revenue rose 23% year over year to $740 million, exceeding analysts' estimates by $40 million, while its adjusted earnings surged 150% to $0.20 per share and cleared the consensus forecast by seven cents.
Pinterest's headline numbers were impressive, but does its stock still have room to run after rallying 90% over the past 12 months? Let's see why the bulls rushed back to Pinterest -- and where it might be headed over the next 12 months.
Image source: Pinterest.
Why are investors bullish on Pinterest again?
Pinterest's year-over-year revenue growth has accelerated for five consecutive quarters. Its monthly active users (MAUs) rose 12% year over year to 518 million in the first quarter -- which represented its second consecutive quarter of double-digit growth -- and its average revenue per user (APRU) grew again over the past three quarters.
|
Metric |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
MAU Growth (YOY) |
7% |
8% |
8% |
11% |
12% |
|
ARPU Growth (YOY) |
(1%) |
(1%) |
3% |
2% |
10% |
|
Revenue Growth (YOY) |
5% |
6% |
11% |
12% |
23% |
Data source: Pinterest.
That acceleration countered the bearish notion that Pinterest was just a pandemic-era fad which would fizzle out as its users spent less time pinning their hobbies, interests, and ideas to its pinboards. It also indicated that Pinterest could keep pace with Meta's Instagram and ByteDance's TikTok in the "social commerce" market with its shoppable pins.
Pinterest attributed its recent growth spurt to its overseas expansion, the rising popularity of its mobile app, an influx of Gen Z users which curbed its dependence on its older Millennial and Gen X users, fresh video content, new AI-driven recommendations, and the integration of more e-commerce tools into its platform.
During Pinterest's latest conference call, CEO Bill Ready said Gen Z was now the platform's "largest and fastest-growing demographic at more than 40% of our users." Ready also said the "billions of acts of curation" which occur on its platform are creating a "flywheel effect" by feeding more first-party insights into its AI-powered algorithms.
NYSE: PINS
Key Data Points
For the second quarter, Pinterest expects its revenue to rise 18%-20% year over year. For the full year, analysts expect its revenue to grow 20%. By comparison, analysts expect Meta's revenue to grow 18% this year.
Pinterest also reiterated its prior outlook (which it presented during its investor day presentation last September) for growing its revenue by a "mid-to-high teens" compound annual growth rate (CAGR) over the next three to five years.
Pinterest's margins are still expanding
As Pinterest's revenue growth accelerated again, it pruned its workforce and reined in its spending. As a result, its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margins consistently expanded over the past year.
|
Metric |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
Adjusted EBITDA Margin |
4% |
15% |
24% |
37% |
15% |
Data source: Pinterest.
For the full year, analysts expect Pinterest's adjusted EBITDA to increase 41% as its adjusted EBITDA margin expands 410 basis points to 26.5%. Analysts also expect it to turn profitable again on a generally accepted accounting principles (GAAP) basis in 2024, and for its bottom line to stay in the black for the foreseeable future.
Based on those rosy expectations, Pinterest's stock still looks reasonably valued at 26 times this year's adjusted EBITDA. However, Meta admittedly looks a bit cheaper at just 12 times this year's adjusted EBITDA. Over the next three to five years, Pinterest expects its adjusted EBITDA margin to expand to the "low 30s" as it scales up its business.
Where will Pinterest's stock be in a year?
Pinterest has clearly overcome its post-pandemic slowdown and continues to expand its niche of the social media market with its interest-based pinboards. It's gone on a wild ride since its IPO five years ago, but it's still more than doubled from its IPO price -- and it should head even higher over the next 12 months as it locks in even more users.
