Share prices of Pinterest(NYSE: PINS) have been hammered since the company warned of slower revenue growth when it reported its second-quarter earnings results last month. The plunge wiped out all the gains in the stock for the year, and it is now down more than 20% year to date.
Let's take a closer look at Pinterest's most recent results and guidance and decide whether now is a good time to buy the dip.
Pinterest's forecast disappoints
After seeing continued revenue growth over the past year, Pinterest's top-line growth leveled off from 23% year-over-year growth in the first quarter to 21% growth in its most recent quarter to $854 million.
Growth was solid across regions, with revenue up 19% year over year in the U.S. & Canada to $673 million. European growth was even stronger, growing 25% to $143 million, while rest-of-world revenue soared 32% to $38 million.
Monthly active users (MAUs) also rose with year-over-year growth of 12%, which was the same as in Q1. Once again, these gains came largely from outside North America, with MAUs rising 9% in Europe and 17% in the rest of the world. U.S. & Canada MAUs increased 3%.
While continuing to grow its user base remains important, Pinterest's biggest opportunity is better monetizing its already large user base. The company did a solid job of this once again in the second quarter, as demonstrated by the gains it saw in its average revenue per user (ARPU) across regions. Overall, global ARPU rose 8% to $1.64. However, ARPU on a regional level was much higher across the board. This is because Pinterest has considerably more MAUs from outside the U.S., which carry much lower ARPUs. As such, it is generally better to look at its ARPU growth on a more regional level.
In the U.S. & Canada, ARPU jumped 16% to $6.85, while European ARPU climbed 14% to $1.03. For the rest of the world, ARPU rose 13% to $0.13.
Turning to profitability, Pinterest reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $180 million, a 68% year-over-year increase. Earnings per share (EPS), meanwhile, came in at $0.01 versus a $0.05 loss a year ago.
Looking ahead, the company guided for Q3 revenue to be between a range of $885 million to $900 million, representing 16% to 18% growth year over year. It noted that growth will slow due to tougher comparisons as well as some currency headwinds.
While the company recently launched its new Performance+ automation and AI suite of services for advertisers, its guidance does not expect an uplift in Q3 from the product since it is still in its test phase.
Image source: Getty Images.
Is it time to buy the dip?
Despite the sell-off in the stock, there were a number of positives to come out of Pinterest's most recent quarterly results and guidance. Regional ARPU growth remains strong while new users continue to join the platform.
Meanwhile, the company's partnerships with Alphabet and Amazon are showing nice signs of ramping up and positively contributing to revenue growth. This is especially true of its partnership with Alphabet's Google, which is helping it profit in international markets that were previously under-monetized or not monetized at all. Because the majority of Pinterest's MAUs come from outside the U.S. and Europe, improving the monetization of these users remains a huge opportunity for the company.
At the same time, Pinterest has driven a lot of innovation in recent years, both on the user side of its platform and well as for advertisers. Performance+ is the latest example of this and was designed to help reduce the time it takes for advertisers to create campaigns, as well as lower costs and improve click-through rates. Ultimately, the better the results advertisers have using the Pinterest platform, the better the company should perform in the long run.
Trading at a forward price-to-earnings (P/E) ratio of about 16 based on 2025 analyst estimates, Pinterest stock is very attractively priced following the recent sell-off in the stock. The company is still growing strongly and is in the early days of better monetizing its large international user base.
PINS PE Ratio (Forward 1y) data by YCharts
Taken all together, I would be a buyer of the stock on this dip, as the long-term prospects for this growth stock remain enticing.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Geoffrey Seiler has positions in Alphabet and Pinterest. The Motley Fool has positions in and recommends Alphabet, Amazon, and Pinterest. The Motley Fool has a disclosure policy.
