Pinterest Stock: Luster Lost or Value To Be Gained?

Pinterest Inc. (NYSE: PINS) is a social media network that continues to attract users looking for ideas and inspiration, not drama and trolling. The site now requires a birth date to better provide artificial intelligence (AI) powered personalized recommendations and relevant ads. Pinterest doesn't pay content creators directly. Instead, creators can partner with brands, create sponsored content, or try to drive traffic to their other monetization platforms. Yet, content creators continue to flock to the platform.

Pinterest operates in the computer and technology sector, competing with social media platforms like Snap Inc. (NYSE: SNAP), Meta Platforms Inc. (NASDAQ: META), and Pinduoduo Inc. (NASDAQ: PDD). 

A Visual Discovery Engine

Pinterest calls itself a visual discovery platform, which describes how its users can browse billions of images and videos called pins for ideas and inspiration on fashion trends, recipe ideas, home décor, and fitness and travel tips. Users can share their ideas by saving pins on boards. Millions of boards help to connect and foster a sense of community built on inspiration and creativity. Unlike most social media platforms, Pinterest is mostly a drama-free environment. This is one of the most attractive features of the platform: a drama-free culture. This is evident by its growing user base of 522 million monthly active users (MAUs), up 12% YoY in the second quarter of 2024.

Monetizing Organic Interests

People come to Pinterest seeking ideas and inspiration. Ultimately, this can lead to sales. Pinterest monetizes this natural progression by linking pins to products, enabling users to purchase the items they discover on the platform seamlessly. It's the epitome of the soft sell. Advertisers and brands overwhelmingly love this approach, as evidenced by its 21% YoY revenue growth in Q2 2024, reaching $853.68 million, beating consensus estimates of $848.75 million. The company earnings 29 cents per share in the quarter, beating consensus estimates by a penny. Average revenue per user (ARPU) rose 8% YoY to $1.64.

Growth Trajectory Resumes But ARPU Pales

Pinterest peaked at $478 million MAUs in Q1 2021. MAUs declined for the next three quarters to a low point of 431 million by Q4 2021. Since then, it's been on an upward trajectory for the next 10 straight quarters, hitting all-time MAUs of 522 million users by Q2 2024. Most of the user growth is occurring internationally outside the United States and Europe. Unfortunately, that's also the lowest ARPU since the rest of the world (ROW) average ARPU stands at just 13 cents per user compared to $6.85 in the United States and Canada. Europe's ARPU is $1.03. The market has overreacted, dropping its enterprise value over forward revenues (EV/S) to just 5.22.

Guidance Shocked Investors

Pinterest shares collapsed by nearly 20% following its Q3 2024 forecasts. The company issued downside guidance for Q3 revenues of $885 million to $900 million, falling short of $908.57 million consensus analyst estimates. The company noted that tougher comps and weakness among its food & beverage brand advertisers were the main reasons since revenue growth jumped over 90% from the second quarter to the third quarter of 2023.

Analysts See Opportunity But Cut Price Targets to Temper Expectations  

Citi cited that newer ad tools and margin expansion will drive a greater capture of a broader digital advertising market. They believe Pinterest is attracting higher advertiser budgets and the stock selloff is a buying opportunity. Citi maintained its Buy rating but trimmed its price target to $44, down from $51. BMO reiterated its Outperform rating with a $46 price target. Roth MKM noted that management was upbeat, and its recently launched AI-powered adtech focusing on easing friction points for smaller advertisers was a boon. They lowered their price target to $39.

PINS Stock Is in an Ascending Triangle Pattern

An ascending triangle pattern consists of a flat-top upper trendline resistance connected at the apex point to the ascending lower trendline, indicating higher lows.

PINS commenced its ascending trendline off the $26.94 swing low. Shares triggered a daily market structure low (MSL) buy trigger on the bounce above $29.42. PINS rallied to a peak of $32.72, marking the upper trendline resistance. The daily relative strength index (RSI) is bouncing to the 45-band. Fibonacci(fib) pullback support levels are at $29.69, $26.94, $25.73, and $24.52.  

Pinterest’s average consensus price target is $42.71, and its highest analyst price target sits at $52.00. The daily anchored VWAP is a medium-range target, and resistance is at $34.87.

Actionable Options Strategies

PINS bounced off the $26.94 fib. Bulls can patiently wait for pullbacks to fib support levels using cash-secured puts with trail stops under the $24.52 super fib support. To generate income, a wheel strategy can be implemented upon being assigned shares and writing covered calls.

The article "Pinterest Stock: Luster Lost or Value To Be Gained?" first appeared on MarketBeat.