Pinterest's (NYSE:PINS) revenue growth is likely to continue to benefit as online media and ad spending recovers. It's already mounted an impressive comeback since the onset of the COVID-19 pandemic, and I think its second-quarter earnings report on Friday will show continued strength.

The image-sharing social media company's shares have more than doubled since hitting their coronavirus lows on March 18, beating the S&P's gain of roughly 35% during the same time. E-commerce spending has been trending up, and so have industry players' CPMs (cost per thousand impressions, a common industry metric). Pinterest is showing impressive user engagement, and its integrated shoppable pins via its partnership with Shopify could lead to merchants spending more to advertise with Pinterest. These factors could make the consumer discretionary company a good investment as advertising levels see a lift.

Someone looking at Pinterest on tablet

Image source: Pinterest.

Pinterest has seen strong engagement despite COVID-19

The social media company saw record engagement during the early stages of the COVID-19 pandemic. Pinterest receives revenue when consumers engage with promoted pins. The company also makes money through paid advertising on its site. CEO Ben Silbermann noted on the first-quarter earnings call in early May that "searches were up more than 60% year-over-year. New board creations, which does indicate that people are using Pinterest for new use cases, were up 60% year-on-year. Pinner views on their own boards, that was also up 60%." 

These encouraging user engagement metrics bode well for the company's revenue growth. Even with the risks around advertising spending contraction due to the U.S. recession, Pinterest appears well positioned due to its enviable engagement trends.

Pinterest's user base, which is over 70% female, is a popular demographic for advertisers, as this group often makes buying decisions for the household. Frequently, these Pinterest users are browsing the site with buyer intent, making them even more appealing to advertisers. A 2016 study found that about 93% of Pinterest users or "pinners" use the platform to either plan for or make future purchases.

This helps boost Pinterest as a platform, as advertisers want to invest in higher conversion campaigns. Silberman said on the first-quarter earnings call: "For those advertisers that continue to spend, we've seen a shift away from awareness campaigns and toward highly performant ads, an area we've invested heavily in over the past year."

Digital advertising is outperforming

While total U.S. advertising is projected to decrease 13% in 2020 (versus the 16% decrease in the 2009 recession), digital advertising will hold up much better, according to GroupM, the largest global media investment company. The firm expects digital advertising to be flat for the year, helped by a boost from political advertising in the U.S. Furthermore, a recovery of 11.3% growth in digital ad spend is expected next year.

Pinterest will benefit as ad spend is seen picking up in the third quarter, according to research group Advertiser Perceptions. This researcher's survey of 151 media buyers and advertisers showed an encouraging recovery for advertising spend amid a recession and high levels of unemployment.

Pinterest's integrated shoppable pins are good for future revenue

Pinterest's recent partnership with e-commerce platform Shopify allows retailers to add tags to their Pinterest accounts. This means shoppers can search for a product and discover the brand. Merchants can also create shoppable pins for their Shopify products, which lets the Pinterest customer buy directly from the merchant's store. This also helps Shopify merchants to create content and advertising on Pinterest easily.

The deal between Shopify and Pinterest will likely help support Pinterest's revenue growth because e-commerce merchants tend to spend more on online advertising to support their businesses. Now that there's a more integrated way to run advertisements that have high conversion potential, it could lead to additional spending by Shopify's vendors.

Overall, Pinterest stock has many elements working in its favor. Its desirable user base, combined with recent deals making it easier for merchants to advertise with Pinterest, are all tailwinds for the company. As digital advertising continues to recover, Pinterest looks like a good investment to consider.