Pinterest (PINS) stock has remained under intense pressure this year as investors remained concerned about its business trajectory and its slowing user growth. It has retreated by 12% this year as America’s stock indices like the NASDAQ 100 and S&P 500 surged to their all-time highs.
Pinterest has also severely underperformed Meta Platforms, a company whose valuation has soared to over $1.4 trillion. Its market cap has dropped to $22 billion, down from its all-time high of over $53 billion.
Slowing growth and competition
Pinterest is one of the biggest players in the social media industry with about 500 million users globally. Most of its users are Gen Z women, who account for about 40% of its ecosystem.
It has become a top player at the intersection of search, social, and commerce. It then makes money through various forms of advertising, which include videos, shopping, carousels, collections, and interactive ads.
The challenge, however, for Pinterest is that its revenue and user growth has slowed in the past few years. Besides, the social media industry has become highly competitive from companies like Snap, TikTok, Google, and Meta Platforms.
This slowing growth can be seen in its revenue trends. Its annual revenue stood at $3.05 billion in 2023, a small increase from the $2.8 billion it made a year earlier. Its forward revenue growth is about 14%, compared to Meta’s 17%.
The most recent financial results show that Pinterest’s business improved modestly last quarter. Its revenue grew by 21%, helped by the rest of the world, which grew by 32%, and Europe, which had a 25% growth.
Pinterest also continued to add more users, with the number of monthly active users (MAU) growing by 12%. Most of this growth came from the rest of the world (17%) and Europe (9%).
US and Canada, its most lucrative market grew by just 3% during the quarter. This is notable since an average customer in the US brings $6.85, while the same customer in Europe and RoW brings in $1.03 and $0.13.
Read more: Pinterest stock tanks 20% on Q4 earnings
Social media earnings ahead
The next important catalyst for the Pinterest stock price will be earnings by top social media companies like Snap, Google, and Meta Platforms.
In most periods, these numbers usually provide more color about the state of the advertising market.
While the two companies are different, I feel like Snap and Pinterest are related since their users are mostly Gen Z women. This is unlike Meta Platforms, which is a more diversified company.
Analysts expect that Snap’s revenue will come in at $1.36 billion, a 34% increase from the same period last year. Meta, on the other hand, is expected to deliver revenues of $40.29 billion, a 20% increase.
Pinterest will publish its quarterly results on Nov. 7. Analysts expect the upcoming results to show that Pinterest’s revenue rose by 20% to $896 million. The company is then expected to provide a fourth-quarter revenue guidance of $1.14 billion. For the year, its revenues will rise by 19% to $3.64 billion, followed by 16.9% to $4.25 billion in 2025.
If these numbers are accurate, it means that Pinterest is not highly overvalued since it has a market cap of over $22 billion, and has now started to focus on profitability.
Pinterest has gross margins of 78.5%, higher than the sector median of 51%. Its net income margin in the trailing twelve months (TTM) was 5.75%. I believe that its profit margin will match Meta Platform’s 25% in the long term since they have a similar business model.
A 25% profit margin on $5 billion annual revenues is about $1.25 billion, which would give it an estimated valuation multiple of 14. Meta has a forward P/E ratio of 26, higher than the sector median of 18.
Analysts are optimistic that Pinterest’s stock is undervalued. With it trading at $32.26, the average estimate is that its stock will rise to $42.6, about 30% above the current level.
The biggest risk for Pinterest is that it will likely continue to see weak growth in the future as competition rises.
Read more: Pinterest stock should be worth $34: Wells Fargo
Pinterest stock price analysis
The daily chart shows that the PINS share price was trading at $32.50 on Monday, down by 28% from its highest point this year.
Pinterest has remained slightly below the 50-day and 100-day Exponential Moving Averages (EMA).
It has remained above the ascending trendline, which connects the lowest swing since July this year.
Therefore, the stock will likely remain in this range for a while as traders wait for its earnings. If this happens, the key point to watch will be at $30, its ascending trendline shown in orange. However, a move above the key resistance level at $34.40 will point to more gains.
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