The COVID-19 pandemic crushed many social media stocks, as investors assumed companies would buy fewer ads throughout the crisis. Yet Pinterest (NYSE:PINS) recently defied those expectations with surprisingly robust guidance for its first quarter, which ended on March 31.
Pinterest expects its revenue to rise 33%-35% annually to $269 million to $272 million. It expects its monthly active users (MAUs) to grow 81%-82% to 365 million to 367 million. Within that total, it expects its MAUs in the U.S. to rise 5%-6% to 89 million to 90 million, and for its international MAUs to climb 34%-35% to 276 million to 277 million.
Pinterest didn't provide any bottom-line guidance, but noted that its cash, cash equivalents, and marketable securities rose 165% annually to $1.7 billion. It doesn't have any financial debt, and it hasn't drawn a single dollar from its $500 million revolving credit facility yet.
However, Pinterest also withdrew its guidance for the full year, which originally called for 33% revenue growth with flat-to-slightly-positive adjusted EBITDA growth.
CFO Todd Morgenfeld stated Pinterest saw a "sharp deceleration" in revenue growth in the second half of March, but its exposure to struggling sectors like travel, cars, and restaurants was "not significant." Nonetheless, Morgenfeld noted the near-term impact of COVID-19 remains "difficult to measure and quantify."
CEO Ben Silberman stated that stay-at-home measures sparked "record levels of engagement in Pinners" over the past two weeks. Silberman noted that more people were searching Pinterest for new ideas like building home offices or engaging kids with new activities.
Not an an all-clear for social media stocks
Pinterest's first-quarter guidance is solid, but it warned that its ad revenue dipped "sharply" in the second half of March even as its engagement rates rose. This matches the recent guidance from online payments provider Square (NYSE:SQ), which also experienced a slowdown in March after the pandemic spread across the U.S.
Pinterest's decision to pull its full-year guidance also suggests the situation will get worse before it gets better. Companies are closing stores and laying off workers, and recent jobless claims data suggests the unemployment rate in the U.S. is now around 10%. In this dismal macro environment, companies are more likely to slash their ad budgets -- even as user engagement rates rise on social networks.
Rising engagement rates on Pinterest, Facebook, Twitter, and Snap shouldn't be surprising, since people are spending more time at home in front of their PCs or phones. However, these companies could still struggle to balance their bottom lines without fresh advertising revenue to offset their operating costs.
These social media companies usually don't disclose their ad revenue by industry, but it isn't surprising that Pinterest -- which is often used to share ideas for clothing, health and wellness, hobbies, and home design -- isn't highly exposed to the travel, auto, and restaurant industries.
However, it's unclear if Facebook, Twitter, and Snap can make the same claim. Last year, a study by DataDriven found that retail, food, consumer goods, and travel ads accounted for over a third of Facebook's ads -- which suggests the pandemic could take a big bite out of its ad revenue.
Twitter's top advertisers in the U.S. are mainly packaged foods giants like Nestle, Kraft Heinz, and Coca-Cola, according to Pathmatics. Snap's top advertisers include ByteDance's TikTok, Coca-Cola, Comcast, and Disney, according to MediaRadar.
That's also a mixed bag: Packaged food companies might not need to buy more ads as consumers constantly stock up on goods, and media companies will likely cut their spending as they release fewer movies and TV shows. In short, all these social media companies will likely experience slowdowns of varying degrees throughout 2020 -- but it's unclear which one will suffer the most.
The bottom line
Pinterest's guidance is encouraging, but investors shouldn't assume the worst is over for ad-dependent social media companies. The next few quarters could be much tougher as the economic fallout from the COVID-19 pandemic ripples across multiple sectors, and only the strongest will withstand those headwinds.