Pinterest (NYSE:PINS) reported third-quarter 2019 results after the closing bell on Thursday that the market decisively considered a Halloween trick, rather than a treat.

Shares of the San Francisco-based tech company, which operates a platform for sharing visual images, plummeted 20% in after-hours trading on Thursday, suggesting that their performance on Friday could be frightful.

We can attribute the market's ire to revenue falling short of Wall Street's consensus estimate and to the company issuing a softer full-year revenue outlook than many investors were likely anticipating. The latter was almost surely the bigger factor, since the market is a forward-looking machine.

Here's how the quarter worked out for Pinterest -- which went public in April -- and its investors.

Black tablet screen showing various Pinterest topic categories.

Image source: Pinterest.

Pinterest's key numbers

Metric

Q3 2019

Q3 2018

Change 

Revenue

$279.7 million

$190.2 million

47%

GAAP operating income

($133.7 million)

($22.4 million)

Loss widened 497%

GAAP net income

($124.7 million)

($18.9 million) Loss widened 560%

Adjusted net income

$6.0 million ($14.9 million) Result flipped to positive from negative

GAAP earnings per share (EPS)

($0.23)

($0.15) Loss widened 53%

Adjusted EPS

$0.01 ($0.12) Result flipped to positive from negative

Data source: Pinterest. GAAP = generally accepted accounting principles.

The seeming disconnect between the net income-EPS pairs for the quarter vs. the year-ago period is due to the fact that there are significantly more shares available now following Pinterest's initial public offering (IPO) in April.

Nearly 90% of the company's total revenue was derived from ad dollars in the United States even though it has more international users because it realizes a significantly higher average price per ad in this country.

Wall Street was looking for an adjusted loss of $0.04 per share on revenue of $280.6 million, so Pinterest slightly missed analysts' top-line expectation but beat on the bottom line with its unexpected adjusted profit.

For context, in the second quarter, as I wrote in my earnings preview:

Pinterest's revenue soared 62% year over year to $261.2 million, breezing by the $235.5 million Wall Street was expecting. That growth was an acceleration from the first quarter's growth of 54% year over year. The company's adjusted, or non-GAAP (generally accepted accounting principles), net loss narrowed 28% from the year-ago period to $24.5 million, or $0.06 per share. Analysts had been projecting a $0.08 loss per share. GAAP net loss came in at $1.16 billion, although much of that loss was related to one-time charges associated with the IPO.

So, while year-over-year revenue growth accelerated from Q1 (54%) to Q2 (62%), it decelerated sequentially in Q3 (47%).

Key user and operational stats

Metric

Q3 2019

Change (YOY)

Monthly active users (MAUs) 322 million 28%
Average revenue per user (ARPU) worldwide $0.90 14%

Data source: Pinterest. YOY = year over year.

The number of MAUs in the U.S. rose 8% year over year to 87 million, while the number of international MAUs jumped 38% to 235 million.

For some context, social media titan Facebook, which reported its Q3 earnings on Wednesday, has 2.45 billion MAUs and an ARPU of $7.26.

Guidance

Management updated its full-year 2019 outlook as follows:

  • Total revenue is expected to be between $1.100 billion and $1.115 billion, compared to its prior forecast of $1.095 billion to $1.115 billion.
  • Adjusted EBITDA (earnings before interest, taxes, and depreciation) is expected to be between negative $30 million and negative $10 million, compared to its prior projection of negative $50 million to negative $25 million.

Pinterest slightly raised the bottom number of its revenue guidance range and solidly increased its expectation range for a key profit metric. So, what's up with the stock getting crushed? As I wrote in my earnings preview, "Given how new the company is to the public markets, revenue growth is probably the better metric to use to gauge its performance." No doubt, the market was anticipating a revenue beat in Q3 coupled with a decent increase on the top line, just as the company delivered last quarter.

I think the market may have overreacted a bit, as one quarter doesn't make a trend and it's likely the company lowballed its revenue guidance to be on the safe side. Moreover, it's certainly a big positive that Pinterest achieved profitability on an adjusted basis just a half a year after going public. That said, investors should certainly be keeping a close watch on the company's revenue growth.