At just right around $24 per share right now, Pinterest (NYSE:PINS) has fully given back its lockdown-era gains. During 2020, and through the start of 2021, PINS stock skyrocketed. This was due to the “stay at home” economy driving tremendous user and revenue growth for the social media platform.
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But since the start of the “recovery,” it’s been all downhill. Realizing it overestimated how much the company’s novel coronavirus pandemic tailwinds would last, the market steadily re-adjusted Pinterest’s valuation.
Takeover rumors, which are still surrounding it, drove a short-lived attempt to rebound last fall. Yet, once these rumors faded away, the long slide back to lower prices continued. Add in the tech selloff starting in November, and it’s no surprise that the stock has come full circle — with the wild ride that took it near $100 per share taking it back down to $25 per share.
Admittedly, this is not a “bad company,” in the sense that it has a big hurdle it needs to overcome. Analysts project moderate levels of revenue and earnings growth in the coming year. Still, despite beating expectations with its earnings release, that’s far from a guarantee that it’ll not disappoint in the quarters ahead. With this, it’s better to stick to tech names, beaten down lower in recent months, that have far less uncertainty.
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PINS Stock and Recent Earnings
Throughout last year, disappointment with its quarterly earnings results helped to drive Pinterest’s continued price declines. But not so much with the revenue and earnings numbers themselves.
Instead, it was due to discouraging user trends. Namely, falling monthly active users (MAUs), which many saw as a hit of slower growth ahead in the post-pandemic era. That said, with its most recent quarterly earnings release on Feb. 3, the market had a more positive reaction when it came to PINS stock.
MAUs may have dropped again during the December quarter. Year-over-year (YOY), global users fell by 6%, from 459 million to 431 million users. U.S. active users fell by 12%, from 98 million to 86 million. Even so, investors weren’t too concerned.
Instead, they were satisfied with its revenue and earnings beats. Actual revenue came in at $847 million, above estimates calling for $827.5 million. Adjusted earnings per share (EPS) came in at 49 cents, above estimates calling for 45 cents. The market was also satisfied with its guidance update, which called for revenue growth in the high teens this quarter.
However, this positive reaction did not last long. Since then, shares have continued to slide. Perhaps not to the degree seen in prior months. Nevertheless, it may signal little confidence that a comeback is in store.
Why a Rebound May Prove Tough for Pinterest
Back down to near what it traded for at the start of the 2020 lockdowns, it may seem like PINS stock has little more room to fall from here. Furthermore, given the projections of moderate growth in the coming year, to some it may seem like shares have just about bottomed out. After its high double-digit percentage decline, a rebound is due.
But despite the sell-side projecting 21.3% revenue growth this year, re-accelerating to 26.5% in 2023, this is a considerable slow-down compared to the pandemic era. In 2020 and 2021, its top line grew 48.1% and 52.3%, respectively. Not only that, there’s a degree of uncertainty to its growth projections for this year and the next.
Again, due to its falling MAU numbers. Plus, the fact meeting or beating expectations hinges on growing its non-U.S. average revenue per user (ARPU). As InvestorPlace’s Joel Baglole argued back in January, Pinterest has struggled with international monetization.
For the time being, the market will take a “show me” approach. That is, only bidding up the stock once it’s clear a rising APRU will more than make up for falling MAUs. Even then, there may be limited upside. And as it becomes a mature business, it may prove tough for it to get back to a premium valuation.
The Verdict on PINS Stock
In closing, I’ll mention another discussed “catalyst” with Pinterest stock. That would be its potential as a takeover target. Above, I mentioned how takeover rumors helped shares to spike last fall. When this talk failed to move beyond the rumor stage, the stock continued on its descent.
After its big decline in price, the rumors are re-emerging. On one hand, I’ll admit it’s possible that a larger tech company may find its platform, with its e-commerce overlap, to be a great bolt-on opportunity.
On the other hand, you shouldn’t buy any stock just on its takeover potential. More often than not, a deal fails to emerge. Absent other catalysts, these plays typically perform poorly, compared to companies with catalysts more directly tied to their underlying businesses.
Earning a “F” rating in my Portfolio Grader, until the company can prove that it’ll find a way to “crush it” post-pandemic, it’s best to avoid PINS stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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