What happened

After the release of its first earnings report since going public in April, shares of Pinterest (NYSE:PINS), a visual search engine and social media platform, dropped as much as 17% in early-morning trading on Friday. Shares were down about 10% as of 9:53 a.m. EST.

So what

Pinterest's stock has been red hot since its public debut, so the pressure was on for the company to deliver strong results. Unfortunately, its first-quarter results can best be described as mixed:

  • Revenue grew 54% to $202 million. That was slightly ahead of the $200.6 million in revenue that Wall Street had expected. The sales jump was driven by a 51% increase in the U.S. and 107% growth in international markets. 
  • The average revenue per user (ARPU) expanded 26% to $0.73. 
  • Monthly Active Users (MAUs) grew by 22% to 291 million. Domestic MAUs were up 6% to 85 million while international MAUs were up 29% to 206 million.
  • Non-GAAP (generally accepted accounting principles) expenses grew 35%, for a slower rate of growth than revenue.
  • Net loss was $41 million, or $0.33 per share. That was much worse than the $0.11 net loss per share that analysts were expecting.
FIve adults leaning on a wall with smartphones in their hands

Image source: Getty Images.

Turning to guidance, here's what the company expects in 2019:

  • Revenue will land between $1.055 billion and $1.08 billion. This represents growth of 40% to 43%. For context, Wall Street was expecting $1.06 billion in full-year revenue.
  • Adjusted EBITDA is expected to land between negative $70 million and negative $45 million.

Traders are selling off shares in response to the worse-than-expected net loss and modest guidance.

Check out Pinterest's latest earnings transcript.

Now what

Pinterest's stock was trading for more than 21 times trailing sales prior to this earnings report. That nose-bleed valuation likely ramped up the expectation so high that anything short of blowout quarterly results and strong guidance was bound to cause the share price to take a hit.

The good news for bulls is that revenue, APRU, and MAUs are all trending in the right direction. Management is also investing heavily now in an effort to launch new tools that advertisers can use to make the company's platform more attractive.

Overall, my view is that the long-term thesis for owning Pinterest's stock is still intact, but this report clearly shows that the company's C-suite has some work to do with regards to managing Wall Street's expectations.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.