Pinterest (PINS) shareholders haven’t had much to cheer about in 2022. Pinterest’s share price is down 43% year-t0-date.
However, since the company announced on June 2 that it was acquiring the artificial intelligence-powered shopping platform The Yes, its stock’s gained almost 12%. Investors view this move as another step in growing its e-commerce platform while maintaining its goal of enabling its users to visually explore products on its site.
I continue to believe Pinterest remains a buy. The latest news only cements my belief. Here’s why.
The Yes Across Many Categories
While The Yes is focused on fashion, Pinterest CEO Ben Silbermann plans to roll out its technology for other categories such as home, beauty, and food. The Yes CEO and co-founder Julie Bornstein will lead Pinterest’s vision and strategy once the deal closes. Bornstein was Chief Operating Officer of Stitch Fix (SFIX) before leaving in 2018 to start her shopping platform.
“THE YES team are experts in building an end-to-end shopping experience. They share our vision of making it simple to find the right products that are personalized for you based on your taste and style. We’re very excited about THE YES’s talented team and technology as we build dedicated shopping experiences on Pinterest.” Silbermann stated in its press release.
Pinterest plans to shut down The Yes app and integrate the technology into the Pinterest platform.
Earlier this year, Pinterest held its second annual Pinterest Presents global advertising summit. The one-day session gave advertisers a glimpse into some of its new product features.
The most important feature was Your Shop, the taste-driven algorithm that serves up customized shopping pages for Pinners, the name given to Pinterest users. All U.S. users will get Your Shop by the end of 2022. It will roll out internationally in 2023.
Also noteworthy was the Checkout feature, which allows users to make purchases from within Pinterest, keeping the user more engaged with the platform.
Between the steps taken earlier this year and through the acquisition of The Yes, Pinterest has thrown down the gauntlet when it comes to social media and shopping.
Improving the Shopping Experience
In Pinterest’s Q1 2022 shareholder letter, the company emphasized how shopping was one of its key strategic priorities in 2022. The others include creator-led inspirational content, the overall Pinner experience, and the success of its advertisers.
As a result, it said that it would grow operating expenses by 35-40% over 2021 to help it take care of its strategic priorities. This includes upping staffing in both research and development and sales and marketing.
Pinterest’s average revenue per user (ARPU) was $4.98 in the U.S. and Canada in the first quarter, 31% higher than a year earlier. In Europe, it was $0.72, 40% higher year-over-year, while the rest of the world’s ARPU jumped 164% to $0.08. Overall, ARPU was 31% higher to $1.33.
The Yes will enable it to grow ARPU in all three operating regions, starting here in the U.S. In a year or two, shareholders will look back on the initiatives started in 2022 and marvel at how much was accomplished to make the platform a shopping success.
Much of Pinterest’s revenue is generated by ads on its website and mobile app. It is paid on both a cost-per-click (CPC) and cost per thousand impressions (CPM) and a cost-per-view (CPV) basis for videos.
It served up 16% more ads in the first quarter than a year earlier, at ad prices 2% higher than a year ago. The company is still relatively early in its monetization efforts. The shopping initiatives will help drive increased advertising revenues.
The Bottom Line
Of the 32 analysts that cover Pinterest’s stock, 21 rates it a Hold, while 10 either have it as a Buy or Overweight with an average target price of $28.11, providing 35% potential upside over the next 12 months. Pinterest’s 14-day relative strength is 50.17%, suggesting it’s neither oversold nor overbought.
Pinterest’s first-quarter results worried investors. On the top line, revenues were up only 18% YOY, while adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) fell 8% YOY. Further, its guidance for Q2 2022 was for just 11% revenue growth. However, in Q2 2021, revenues grew by just 4%, so it could always be worse.
In the meantime, it finished the first quarter with more than $2.68 billion in cash and marketable securities on its balance sheet with no long-term debt. It has more than enough to continue investing heavily in its business.
I believe that the work Pinterest is putting into its shopping platform and user experience will pay dividends in the next 12-24 months.
The Yes saying yes to Pinterest is excellent news for those long PINS. It was a brilliant acquisition. We’ll find out how smart over the second half of 2022.
Pinterest is an excellent long-term buy. Under $20, it’s an excellent price to pay.
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