Pinterest (PINS)

You might have already heard of today’s stock report subject Pinterest. You’ve possibly even used it. I’m not a massive user of the service myself. I used it once for ideas on building a trellis for a passionfruit plant. The trellis worked out great – the plant not so much. But my wife and kids use it all the time. It’s basically their go-to website/app for organising anything and everything. I figure if they are using it all the time then other people must be too.

And it turns out they are. The website had 459 million users globally by the end of 2020. That sees it ranked 14th in the list of largest social media user bases. Above it are names such as Facebook with nearly 3 billion, Youtube with 2.3 billion, and Whatsapp with 2 billion. It effectively has the fourth-largest active user base in the US after Facebook, Google, and Snapchat. The rest on the list being Chinese companies. That’s pretty impressive for a business that spent its first two years working out of a two-bedroom apartment.

Pinterest started life in 2009 as a simple social network that you could “pin” ideas to. It picked up more than 10,000 users in its first nine months, with founder Ben Silbermann emailing them all his phone number if anyone wanted to offer advice or any “constructive criticism”. It’s rumoured he invited many of them to lunch meetings to discuss their ideas. However, it was in 2011, with the launch of its iPhone app, that Pinterest really saw its numbers skyrocket.

In August of that year, Time magazine named them as one of the “US’s 50 Best Websites”, and by the end of the year, they were one of the top ten sites in America with 11 million visits per week. Then by January 2012, it had clocked up 11.7 million unique visitors making it the fastest ever website to break through the 10 million visit mark. It’s an effort that has not been matched since.

These days Pinterest is a juggernaut. The site is now a series of “boards” based around different themes such as cooking, travel, weddings, handyman projects, birthday parties – you get the drift. If you’re looking for helpful tips on pretty much anything you need, Pinterest is the site you want. Users “pin” ideas to these boards in the form of pictures and other information which can then be saved and shared and passed around to other users. It advertises itself as a website for “ideas and inspiration” and it’s a very sticky environment. But has its popularity turned into a monetary profit?

Well, it turns out that Pinterest has been extremely successful at monetising its large user base. Users don’t pay to use the service so it’s all about advertising dollars. When you log into Pinterest there are banner ads that pop up when viewing posts, there are promoted pins that look like ordinary posts but are paid for by businesses, and importantly it has shopping capabilities. Here advertisers upload their products to the site where users can click on and purchase items with Pinterest taking a small commission from each sale.

The pandemic threw a spanner in the works of advertising revenue for much of 2020. Spending on advertisements cratered in the first half of the year as advertisers were under pressure to save on expenditures. But by the second half of the year companies started opening their purse strings again and ad revenue recovered strongly. Pinterest managed to generate strong growth for 2020, with fourth-quarter revenue jumping 76% year on year.

Its shopping capabilities benefitted from the general move to online shopping, and this sector grew faster than the rest of the company. The other stand out area was growth outside of the US. International revenue for the quarter grew by 145% year on year. Average Revenue per user (ARPU) grew by 67% internationally to $0.35, and now sits at $1.04, but that is still well behind the IS ARPU of $5.94. International revenue will be a major source of growth in the coming decade.

The latest quarter, ending in March, also saw Pinterest beat expectations on both the top and bottom lines. Revenue was up an impressive 78% YoY, with international revenue up another 170%. Management then advised that they see revenue increasing by 105% in the second quarter. Intriguingly, the share price was punished as monthly active users numbers slowed down and the company guidance showed a flat result year on year. This has been the biggest concern for investors, who have essentially ignored the outstanding growth occurring internationally. It was essentially a great result and the stock market reaction seemed overdone in my opinion.

I see a long term and successful future for Pinterest. They continue to grow their user base, and they continue to increase the monetisation of this base both in the US and overseas. There’s not much to complain about with revenue growing at a triple-digit pace. New products are keeping them attractive and are helping to bring in advertisers and merchants. Pinterest CEO Benjamin Silbermann noted on the latest earnings call “Increasingly, people see Pinterest as a place to not only get inspired but also to shop…Pinterest has a lot of runways left for monetization in international markets.” It’s a recipe for success.

The share price is down around the $75 mark after falling from its all-time high in February of $89.90. It dropped to as low as $55 in May but has recovered well as momentum starts to build again to the upside. I can see Pinterest as a long time hold that could easily breach the $100 mark in the near future, and go higher from there as revenue continues to increase. As always it’s a great stock to buy on any dips.