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Pinterest Stock Offers Attractive Upside Potential

Mar. 03, 2020 3:06 PM ETPinterest, Inc. (PINS)META, MTCH, SNAP, TWTR18 Comments

Summary

  • Pinterest is down by 45% from its highs of the year.
  • The company has a smart business model that could be beneficial to both users and advertisers.
  • User growth and accelerating monetization could drive sustained revenue growth in the years ahead.
  • Profit margins are poised to significantly expand.
  • Competition from Facebook is a relevant risk factor, but it is also creating an opportunity for investors in Pinterest.
  • I do much more than just articles at The Data Driven Investor: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Shares of Pinterest (NYSE:PINS) are down by more than 45% from their highs of the year. The company is growing at a strong rate, but a competitive new service from Facebook (FB) and general market weakness in the context of the COVID-19 panic are putting downside pressure on the stock price.

Source: TOS

Being a relatively small player in a dynamic industry, Pinterest is exposed to substantial risk and volatility in the near term. However, the stock offers attractive upside potential from current prices, and the potential gains could more than compensate for the risks.

The Big Picture

Pinterest has an interesting business model that can be beneficial to both users and advertisers. When users find ideas or inspirational images, they can pin those images to specific boards. Pinterest's algorithm then suggests more new pins based on the user's interest and previous activities, and some of those suggestions can be advertising.

When ads are relevant and useful, it's a win-win for both users and advertisers. The company reported a 3x increase in the percentage of people saving their ads this season, this shows that Pinterest is doing a sound job at optimizing its machine learning algorithms to deliver the right recommendations to the right users.

In times when social media platforms are heavily criticized for being home to toxic and aggressive content, Pinterest is focused on inspiring content and ideas. The company commissioned a survey of 2,000 users from Talk Shoppe on attitudes toward Pinterest. Among the findings: 91% of respondents find Pinterest to be a positive place and 90% say Pinterest inspires them.

Pinterest ended the fourth quarter of 2019 with 335 million monthly active users, a healthy increase of 26% versus the same quarter in the prior year.

Source: Pinterest

The business model is highly monetizable, but Pinterest is

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Performance as of December 31, 2019

This article was written by

Andres Cardenal, CFA profile picture
35.47K Followers
Andrés Cardenal, CFA. Economist, financial analyst, columnist. Naturally flavored.

Analyst’s Disclosure: I am/we are long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I may initiate a long position in Pinterest in the next 72 hours. I replicate The Data Driven Portfolio with my personal money.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

Sunn Veda profile picture
I have a hard time seeing how PINS has a competitive advantage + unique tech. This feels like another TWTR/SNAP story trying to establish some type of differentiation from FB. As long as FB remains the dominant player in all things social media related, others will struggle. I exited this name right around 27 after listening to last ER.
GDPPP profile picture
I don't see a moat in this business @Andres Cardenal, CFA. Like you, I am long $FB and that would be the only social media stock I would own over the next 3-5 years. Would be nice if Zuck can throw a nice little dividend for a change (at least they've been doing buybacks which is good)
p
What about them losing 1.36 billions looks attractive 🤣
p
Also EBITA is BS earnings 😂
c
"Investors considering a position in Pinterest in the current context need to be willing to accept considerably risk and volatility, but the upside potential may be well worth it."
p
Ehhhh. I’ll put my money elsewhere
A
As of 4 March 2020, PINS is down over eighteen percent / -18% since its inception. It is a great concept and website, but, it is still NOT a good enough company to invest one's hard earned $$$$ successfully - yet.
Aspiring Penguin profile picture
pins has been the biggest laggard in my portfolio. thankfully it is the smallest long position i have at less than 0.2 percent of my portfolio. i might add a few more shares if it goes to low teens. otherwise id rather buy dips in msft, adbe, amzn , etc
w
Patience, it will come 😉
EnterUserNameHere profile picture
Pinterest is by far the worst social platform that was ever created. Their idea is solid but the execution and content is terrible. Didn't see a mention of Houzz in your article, that Is and will continue to be a huge competitor that no one considers because it's not really a social platform. You can also save different posts to custom lists with IG. Pinterest offers nothing special or unique. I wish all investors the best but seriously consider selling this stock. There's way too much competition in this space and the competition is much fierce and growing at a faster pace. I mean if anyone can enlighten me and please tell me how Pinterest sets itself apart from it's competitors or what they are actually doing better than their competitors I'd love to hear it.
w
Houzz is similar to Pinterest, yes, but the two definitely have some differences: One of the most obvious is that Pinterest covers a broader range of topics (not just house design but also food, exercise, fashion, and more) while Houzz is specifically geared toward home design
Houzz, currently is not listed yet. I think pinterest has a head start and will grow fast in the coming years, will be hard for houzz to catch up. But houzz could also be potentially interesting ! I will keep an eye out.
S
houzz has been in the CNBC "Top 50 disruptors" list for a while now. Houzz is a shopping while Pins is a social media. The positioning and app features are quite different.
w
Today i bought 900 shares. Im confident for the long term. However, i do believe in the short term the stock could drop another 15-20% due to current market sentiment.
Bageleater profile picture
Hobbi is absolutely not a competitor for Pinterest. Just download the app and see for yourself. It's a bullshit bear narrative.
Bnuts Alpha profile picture
All it has to do is stop falling every day. Which us all it has done since the Q. Long the name and actually like the high user base outside of the US. Could be a nice acquisition for a larger platform needing insight into consumer purchasing decisions
Bnuts Alpha profile picture
All it has to do is stop falling every day. Which us all it has done since the Q. Long the name and actually like the high user base outside of the US. Could be a nice acquisition for a larger platform needing insight into purchasing decisions
Stock Zombie profile picture
Great article congrats 👏🏻👏🏻👏🏻 long $PINS
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