Pinterest (PINS) catapulted to stratospheric heights after it reported third-quarter earnings that smashed expectations. Now, thanks to a rebound in advertising, is PINS stock a buy?
They created an internet application where users can browse millions of images posted by Pinterest users.
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.
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.
How Popular Is Pinterest?
At the end of the third quarter, Pinterest had 442 million monthly active users. That’s up 37% from the year-ago period. More than 76% of users are outside the U.S., although the majority of its revenue is domestic. Pinterest was named the IBD Stock Of The Day after it reported second-quarter earnings.
User activity might include searching for recipes, travel tips or for ideas about home improvement. For example, a user interested in remodeling their kitchen could begin a visual search for ideas and inspiration. Or, they may be looking for popular hairstyles, apparel and decoration ideas.
Pinterest users can follow other users or specific topics. They can also buy goods on the site and create their own pages for others to follow.
That makes Pinterest an attractive venue for advertisers, the source of all its revenue. Pinterest does not take a cut of the sales made through its site.
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. Its valuation today is $42 billion.
Like most companies, Pinterest has had to maneuver through the difficult business environment caused by the coronavirus. The pandemic has had a big impact on internet companies highly dependent on advertising, like Pinterest.
PINS Stock: Fundamental Analysis
Pinterest reported third-quarter earnings on Oct. 29 that smashed expectations.
Revenue jumped 58% from the year-ago period to $433 million. That was well above Wall Street expectations of $383.5 million. It reported adjusted earnings of 13 cents, topping views of 4 cents. PINS stock soared 27% in reaction.
“In the third quarter we saw a return of demand from large brand advertisers who paused or reduced spend during the second quarter as well as the acceleration of strong demand from mid-sized and small advertisers seeking conversions,” the company said in its letter to shareholders.
In addition, it said, “Particular strength came from users under the age of 25, a trend that we’ve seen for several quarters.”
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.
Pinterest did not provide specific guidance for its fourth quarter due to continued uncertainty around the pandemic. But the company did say it expects fourth-quarter revenue will grow around 60% year over year. That’s a modest acceleration compared with the 58% growth in the third quarter.
Navigating Uncertainties Of Covid-19
“We continue to navigate uncertainty given the ongoing Covid-19 pandemic and other factors,” the company said in its third-quarter earnings announcement.
“We expect that our momentum will continue in the fourth quarter as many of the third-quarter drivers persist into the holiday season,” Chief Financial Officer Todd Morgenfeld said during the company’s earnings conference call. “These include the positive trends driven by our investments in conversion and shopping ads, automation and international sales coverage.”
Global average revenue per user in the third quarter was $1.03, compared with 90 cents in the year-ago period. Average revenue per user, or ARPU, in the U.S. was $3.85, up 31%.
“International ARPU remains in the early stages, as we have only begun to execute on our strategy to provide ads that are useful and inspiring to our users in regions outside of the U.S.,” the company said.
In October, RBC Capital Markets analyst Mark Mahaney raised his price target on PINS stock to 35, from 30, and upgraded the company to outperform, from sector perform.
“Pinterest has made significant strides in enriching their offering to advertisers this year by expanding access to their self-serve tools, introducing new ad formats that reach further down the marketing funnel, and improving conversion measurement,” Mahaney wrote in a note to clients.
In the stock market, timing is critical. So when you’re looking for stocks to buy or sell, it’s important to do the fundamental and technical analysis that identifies lower-risk entry points that also offer solid potential rewards.
Pinterest Stock Technical Analysis
The IBD Stock Checkup tool shows that Pinterest currently has an IBD Composite Rating of 88 out of a best-possible 99. The rating means Pinterest stock currently outperforms 94% 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 97. 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.
The stock’s relative strength line is near a record high. The relative strength line measures a stock’s price performance vs. the S&P 500. Typically, the RS line of the strongest stocks is either confirming or leading a stock’s price into new high ground.
PINS stock has an Accumulation/Distribution Rating of B-. 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.
Is PINS Stock A Buy?
PINS stock has been on a long run and many of the basic stock-picking criteria are in the right places. But without a clear chart pattern, a proper buy point is not recognizable at this time. The stock needs to consolidate a couple more weeks. But if it can rebound from the 10-week line, that would create a follow-on buy area.
Pinterest is well-positioned to drive long-term growth with improving profitability. A large market opportunity, a loyal community of sellers and buyers, and new marketing and product initiatives should help Pinterest attract and retain customers.
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