What happened

In response to mixed third-quarter results, shares of Pinterest (NYSE:PINS), a visual search engine and social media platform, had fallen 22% as of 10:28 a.m. EDT on Friday.

So what

The headline numbers from the quarter contained were so-so:

  • Revenue jumped 47% to $279.7 million. That was slightly behind the $280.6 million in revenue that Wall Street had expected. It also represents a substantial slowdown from the 62% growth recorded last quarter.
  • The average revenue per user (ARPU) rose 14% to $0.90. 
  • U.S. revenue grew 39% to $251 million. International revenue grew 212% to $28 million.
  • Monthly active users (MAUs) grew by 28% to 322 million. MAUs in the U.S. rose 8% to 87 million, while international MAUs grew 38% to 235 million.
  • Net loss according to generally accepted accounting principles (GAAP) was $125 million.
  • Non-GAAP, or adjusted, net income was $6 million, or $0.01 per share. That was better than the $0.04 net loss per share that analysts were expecting.
Woman smiling with coffee and phone

Image source: Getty Images.

Management took the opportunity to tweak its full-year guidance:

  • Revenue is now expected to land between $1.1 billion and $1.115 billion. This represents a slight bump from its prior guidance range of $1.095 billion to $1.115 billion. Wall Street was expecting $1.12 billion in full-year revenue.
  • Adjusted EBITDA is expected to land between negative $30 million and negative $10 million. This is lower than the prior forecast of between negative $50 million and negative $25 million.

Traders are thrashing shares in response to the mixed quarterly results and guidance.

Now what

I think there are both good and bad takeaways for investors.

The good news is that MAUs and ARPU are both growing at a double-digit rate. That suggests that users and advertisers are finding value in the platform. The adjusted net income is also encouraging.

The bad news is that revenue growth is decelerating and came up short of expectations. While management pointed out that this was a difficult comparison period, it's clear that it still hasn't mastered the art of managing Wall Street's expectations.

Pinterest's stock is now trading around 12 times trailing sales, which is the lowest valuation since the company went public. While that's still pricy in absolute terms, my view is that this drop represents a buying opportunity for growth-focused investors who still believe in this company's long-term potential.