Pinterest (PINS) revealed both the good and bad aspects of the Covid-19 crisis when it reported first-quarter results that showed a surge in revenue but a warning of slower user growth ahead. As a result, is PINS stock a buy or not?
First-quarter revenue soared 78% from the year-ago period to $485 million. That was it’s best quarterly growth in three years and beat expectations of $472 million. Adjusted earnings also topped estimates. Moreover, Pinterest said it expects second-quarter revenue to jump 105%, also topping expectations.
However, Pinterest stock got hammered the morning after earnings posted. Despite the hearty revenue growth and profitability, the report revealed a slowdown in user growth connected to the Covid-19 recovery, with more people going outside than staying at home
“As pandemic lockdowns were eased in some parts of the world during mid-March, we began to see signs of less engagement and user growth on Pinterest, and we assume this means people are spending more time offline,” Pinterest Chief Executive Ben Silbermann said during the conference call with analysts. “While it’s impossible to say how people act as we enter the summer months, we anticipate this trend will continue.”
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.
At the end of the first quarter, Pinterest had 478 million monthly active users. That’s up 30% from the year-ago period but fell short of expectations. Pinterest said it expects “flat” user growth in the U.S. market in the second quarter. More than 75% of users are outside the U.S., although the majority of its revenue is domestic.
“During the Covid-19 crisis, Pinterest’s platform dovetailed well with the interests of users in lockdown mode, serving as a helpful discovery tool for consumers trying to make the best of life at home,” Monness Crespi Hardt analyst Brian White said in a report to clients. “This environment drove a strong uptick in engagement on Pinterest and attracted new users to the platform; however, these forces are now fading.”
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.
Following the first-quarter earnings report, KeyBanc Capital Markets analyst Justin Patterson lowered his price target on Pinterest stock to 89, from 92. But he maintained a rating of overweight.
“We view monthly active user guidance, which Pinterest historically does not provide, as appropriately conservative, and believe several use cases (e.g. travel, wedding) and marketing initiatives could help drive upside,” Patterson wrote in a note to clients. “We recommend buying PINS on weakness.”
Pinterest Stock Technical Analysis
The IBD Stock Checkup tool shows that Pinterest currently has an IBD Composite Rating of 98 out of a best-possible 99. The rating means Pinterest stock currently outperforms 98% of all stocks in terms of the most important fundamental and technical stock-picking criteria. The best stocks will often rate 98 or 99 at the time they launch a big price run.
PINS stock has a Relative Strength Rating of 93. 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 C-. 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.
In addition, Pinterest’s relative strength line has started to climb, which is a positive 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?
Having only gone public two years ago, in April 2019, PINS stock has quickly become a favorite of the best mutual funds.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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