The COVID-19 pandemic has been a mixed bag for social media stocks.

While usage has generally gone up, advertising is down, and as a result, Pinterest (NYSE:PINS) stock has fallen 28% since the sell-off began in February. It now trades below its IPO price. Though pressure on digital advertising is likely to remain for the foreseeable future, the low price and the growth in its user base sets up a good buying opportunity for long-term investors.

Let's take a closer look at what Pinterest has to offer.

A Pinterest board open on an iPad.

Image source: Pinterest.

A unique medium

Pinterest is different from other social media platforms and popular digital advertising channels.

Sites like Google and Amazon offer advertisers an audience that already knows what it wants. Pinterest, on the other hand, caters to discovery. People turn to the platform to get more information on a variety of subjects like weddings, fashion, or fitness, but they're not necessarily looking for a specific item. They're there to discover, or to be inspired, and that presents an appealing opportunity to advertisers as users, or Pinners, are often very open to purchasing.  

So unlike other social media sites like Facebook and Twitter, Pinterest enjoys a symbiosis with its advertisers. According to a survey from Cowen, 48% of Pinterest users shop or find products on the platform, which compares to just 14% for Facebook, 10% for Instagram, and 7% for Twitter. The company itself says it is still in the "early stages of building an advertising product suite that fully taps the value of this alignment between Pinners and advertisers," so investors should expect a long runway in advertising growth. Its ad load is still significantly below peers like Facebook, meaning it has a lot of room to monetize its user base.

A huge market

The biggest shift in advertising in recent years has been the transition of spending on traditional media like print and television to digital outlets like Google and Facebook, the market leaders, as well as other online platforms such as Pinterest. According to IDC, the global advertising market was expected to grow from $693 billion in 2018 to $826 billion in 2022, or a compound annual growth rate of 5%, while it projects that the digital ad market will grow at an annual rate of 12% in the same time, from $272 billion to $423 billion. Though the COVID-19 pandemic has likely set that growth rate back at least temporarily, Pinterest has a huge market opportunity. 

Pinterest is growing aggressively into that opportunity with 51% revenue growth last year to $1.14 billion, while monthly active users (MAUs) grew 26% to 335 million.  

A growth opportunity

The pandemic may deal a setback to the company, but advertising is ultimately a function of its user base so its most important growth objective is to expand and engage users, who it can later monetize. There are signs it's doing just that during the crisis.

In the first quarter, the company grew MAUs 26% year over year, or 10% from the previous quarter, to 367 million. Revenue slowed to 35% growth, but the company said it has seen record levels of engagement on the platform in impressions, saves, searches, board creation, and visitation. Thanks to improvements to the site, Pinners who engaged with organic shopping content increased 44%, and total organic traffic for retailers increased 130%. Attributed conversions, one metric of ad engagement, rose 40% from March to April.

Pinterest's unique ability to deliver value for advertisers during a difficult time could prove to be a competitive advantage that wins the company market share as advertisers look for new ways to reach customers and stretch smaller ad budgets. While the ad market is likely to remain soft over the coming months, that will give the company time to improve its products and grow its user base, making it even stronger and more desirable for advertisers when the economy recovers.

On a price-to-sales basis, Pinterest is valued similarly to Facebook and Twitter, but it's growing faster than both of them. The recent pullback gives investors an opportunity to scoop up shares of a stock that should have a long and eventually highly profitable growth path ahead of it. Investors would be wise to take advantage of it.

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.