With a tough economic backdrop weighing heavily on companies’ willingness to advertise, social media platform Pinterest (PINS) faces a significant challenge. Indeed, its latest earnings results for the second quarter didn’t provide much fundamental hope for a sector revival. Nevertheless, bullish speculators were encouraged that the company’s key metrics weren’t as bad as initially feared, leading to a significant rally in PINS stock during the afterhours session.
Still, it remains to be seen whether “mitigated failure” is a good enough reason to hold onto Pinterest for the long haul. For adjusted earnings per share, the company delivered 11 cents, though analysts heading into the quarterly disclosure expected adjusted EPS to hit 18 cents. On the revenue front, Pinterest rang up $666 million, also missing analysts’ consensus target, which called for $667 million.
If these figures weren’t disappointing enough, the social media platform also reported that global monthly active users (MAUs) declined by 5% from the year-ago quarter to 433 million. Ordinarily, such a negative disclosure should spell doom for PINS stock. However, analysts expected a sharper decline to 431 million, thus presenting a relative bright spot.
Still, the macroeconomic picture bodes poorly not only for PINS stock but its rivals, including Meta Platforms (META), Twitter (TWTR) and Snap (SNAP). All three companies delivered top and bottom line misses for their Q2 reports, with everyone reporting a weak online advertising market as a key contributing factor for their moribund results.
Still, bullish investors may be buoyed by recent dynamics in the options market.
Distracting Noise for PINS Stock
When the closing bell rang out for the first trading session of August, PINS stock was the subject of unusual options activity. Two entries stood out, first the $13.50 puts with an expiration date of Friday, Aug. 5 and second, the $17 puts, also with the same date of expiry. With only four sessions remaining before these options become worthless, they’re not worth chasing for non-professional traders.
Adding to the conundrum, the massive swing higher in the afterhours session makes near-term bearish bets suspect. In the open market, PINS stock closed up 2.7% on Monday. However, the evening trading session saw shares move up almost 22%, leading to a price of $24.29. Naturally, some gamblers might consider wagering into strength.
But regardless of the robust spike – possibly implying a gap-up move when the opening bell rings out on Tuesday – analysts overall remain less-than-enthused on PINS stock. Three months ago, among 18 covering analysts, three had a “strong buy” rating on Pinterest while 15 saw shares as a “hold.” In the current month, only one analyst views it as a strong buy, with everyone else seeing it as a hold.
Just to confirm the pessimism, Barchart.com’s technical sentiment gauge assesses PINS as a 72% sell rating. Therefore, the bullish (contrarian) view faces significant headwinds, both fundamentally and technically.
Pinterest’s User Demographic Imbalance
Although Wall Street viewed Pinterest’s MAU data as “less bad,” such a conclusion doesn’t necessarily translate to good results. Per the company’s Q2 press release, Pinterest saw no regional growth.
For instance, in the U.S. and Canada market, MAUs slipped to 92 million, representing an 8% decline on a year-over-year basis. In Europe, MAUs declined to 117 million, down 4% YOY. Finally, in the rest of the world segment, this category dipped to 223 million, a 3% YOY loss.
Social media platforms need eyeballs to attract advertisers. Therefore, unless the company has a viable solution on the way, less bad is still bad.
More critically, the company’s user demographic imbalance is now an even bigger liability than it ever was. According to data from Statista.com, 76.7% of Pinterest users are female. While not a problem in and of itself, the issue for PINS stock is that the underlying company is not having much success reaching out to male users. In turn, this dynamic effectively limits the platform’s potential advertising pool.
Even during prior bullish cycles, such an imbalance wasn’t ideal since you never want to be nearly irrelevant to half a region’s population. But during an advertising drought, Pinterest has a severe dilemma on its hands.
Long-Term Questions
While the near-expiry put options probably won’t pan out for bearish traders of PINS stock, in the long run, the pessimistic outlook is probably the most realistic. Like other social media platforms, Pinterest is struggling to attract advertisers. However, its demographic imbalance means that even against this reduced backdrop, it’s effectively cutting the addressable market in half.
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