Pinterest stock price suffered a harsh reversal, crashing by over 10% in extended hours after the company published mixed financial results. PINS fell to $34.95, down by over 12% from the year-to-date high. It remains 47% higher than the lowest point this year.
Pinterest user and revenue growth has deteriorated
Pinterest is a top company at the intersection of social media and commerce. Many people, especially women, use its platform to find ideas, especially interior designs and fashion.
Pinterest’s business has done well in the past few years as its annual revenue jumped from $1.69 billion in 2020 to over $3.64 billion. This has been an impressive growth considering that it was purely organic.
There are signs that Pinterest’s business is slowing. Results released on Thursday showed that its revenue rose by 17% in the second quarter to $998 million. It had grown by 21% in the same period last year.
Pinterest’s monthly active users jumped to 578 million, up by 11% from the same quarter last year. Its important US and Canada business has 102 million users, up from 98 million, while the rest of the world had 329 million, a big increase from 288 million.
The US and Canada division is crucial because it is the most profitable. It generates about $7.29 revenue per user, much higher than $1.30 in Europe and just 19 cents in the rest of the world. The US and Canada ARPU is also much higher than the global figure of $1.74. Its CEO said:
“Three years into our business transformation, I’ve never been more confident in Pinterest’s ability to deliver for our users and advertisers. We’ve found our best product market fit ever by becoming a personalized shopping destination for users and an AI-powered performance platform for advertisers.”
Pinterest’s guidance was that its third-quarter revenue will be between $1.03 billion and $1.053 billion, representing between 15% and 17% growth. Going by its history of beating the topline metrics, it is likely that its final figure will be higher than estimates.
Pinterest’s guidance was better than what analysts were expecting. The average estimate among analysts is that its revenue will be $1.03 billion, representing a 14.7% growth.
Read more: Is Pinterest stock a good buy as the golden cross pattern nears?
Is the PINS stock sell-off justified?
A closer look at Pinterest’s business shows that its business is moderating, which explains why its stock tanked after earnings. Investors are mostly concerned that its user growth metric is not all that strong.
However, there are chances that the sell-off is an overreaction. We believe that its US business growth is still good or a company that is no longer the growth engine it once was.
Additionally, it is normal for a social media that was started in 2008 to lose momentum. The same is true with its revenue growth, which is moderating. In act, we believe that the 17% revenue growth is impressive.
Most importantly, the Pinterest stock is a bargain as it trades at a forward earning multiple of 21. In contrast, Meta Platforms, which is growing at 18%, has a forward multiple of 28.
Pinterest stock price technical analysis
The daily chart shows that the PINS stock price crashed to $34.9 after its earnings. This plunge happened after the company formed the highly bearish rising wedge pattern.
It retested the 50% Fibonacci Retracement level and the 50-day Exponential Moving Average (EMA). Therefore, while the stock may have some volatility, we believe that it will ultimately rebound in the coming weeks.
A rebound may see it jump to $42.16, which coincides with the average analysts’ estimates.
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