Investors should still consider Pinterest (NYSE: PINS) despite the stock’s continued decline over the past few months? In this segment of Backstage ID, accepted at 1. Dec.who have favourited Fool contributors Rachel Warren and Brian Feroldi weigh in.
Rachel Warren: I’ll take it away with the next share, which is Pinterest. This is a stock that found a lot of love at the start of the pandemic [laughs] and got pretty depressed last year. I think some investors remain pessimistic about Pinterest’s long-term growth opportunity. As the stock shows, the stock is down about 40% here today. Stocks briefly burst when rumors broke that they would be taken over by PayPalIndeed, this acquisition has since been filed.
This is another example of a stay-at-home stock that enjoyed tremendous popularity in the early days of the pandemic, but is now trading nearly 50% of its all-time high. I still think this is a good company with good business and lots of growth opportunities. But I think it’s one thing to definitely watch as it has been struggling to keep its monthly active user growth in an optimal place since the world and society opened up a bit.
On a positive note, the company beat in both revenue and bottom line in its latest earnings report, despite slowing monthly user growth. Third quarter revenue increased 43% year over year to $ 633 million. Also broken down by location, US sales increased 33% year over year, while sales to international users increased 96% year over year. Net income was $ 94 million for the three month period. That was a slight decrease, albeit a decrease from $ 94.2 million for the same period last year. Adjusted EBITDA was $ 201 million for the third quarter of 2021. I think it’s important to know that this was a pretty substantial increase from $ 93 million in the third quarter of 2020.
So Monthly Active Users, and Global Monthly Active Users in particular: this is the number that I think has kept a lot of investors busy and is part of the reasons why the stock has fallen so much over the past few months. Compared to the previous year, the monthly active users worldwide grew by only 1% in the last quarter. Monthly active users in the US even declined 10% in the last quarter compared to the previous year.
This was offset somewhat by a 4% growth in international monthly active users over the three month period. I think it’s important to note that, despite the fact that the monthly growth in active users has slowed somewhat, I think some of it was due to the above-average growth in the early days of the pandemic, which has definitely slowed.
The global average revenue per user even increased by 37% year-on-year. Pinterest also reported that the average revenue per user in the US increased 44% year over year in the most recent quarter and 81% internationally. While the monthly growth in active users has slowed, Pinterest is very effective at monetizing its users, and those numbers remain in the mid to high double digits. I think this should definitely be looked at over the next few quarters to see if those numbers balance out.
Brian Feroldi: Are we at the peak of Pinterest users?
Rachel Warren: [laughs] I hope not, I do not think so. I think there is room for more growth.
Brian Feroldi: I need more than hope i am a taurus
Rachel Warren: No, I know. I agree. I think I’m encouraged by the fact that it continues to monetize its users so well, with such steep jumps in average revenue per user. As I mentioned earlier, I think some of what we’re seeing here is just a natural decrease in the average monthly growth rates of active users during the pandemic. I think the company has a lot of growth potential that it can unlock as well as the broader e-commerce space.
This is essentially an advertising platform. The tools provided are essential tools that brands can use to market their goods and services, and the brands have access to a platform that is essentially unprecedented. I think the key here is whether Pinterest can effectively make money in this space while continuing to grow its monthly user base. I believe it can, I think it will take time, I don’t think this is something that will fix itself in a quarter or two.
Brian Feroldi: I’m going to hide that and say that in 90 days everything will fix itself. [laughs] That was all I wanted to hear.
Rachel Warren: Sounds good. [laughs] We go with it.
Brian Feroldi: If you want to be realistic, fine.
Rachel Warren: I’m trying. I try not to set expectations too high. [laughs]
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.