For the second time in a row, Pinterest (NYSE:PINS) skyrocketed following an earnings report that blew past expectations. This time the image discovery specialist posted strong numbers across the board, including on user growth, revenue growth, and the bottom line. The stock closed up 31% in after-hours trading.
Looking beyond the headline numbers, keep reading to see three reasons Pinterest shares are soaring on its third-quarter earnings report.
1. Pinterest crushed its own guidance
There were signs coming into the report that Pinterest could surge past its own forecast, and that's exactly what it did. In its second-quarter earnings report, the company gave guidance that seemed to be conservative: It noted that revenue grew about 50% in July, but called for just 35% top-line growth for the entire quarter, assuming growth would slow to about 27% in August and September.
Instead, revenue jumped 58%, smashing both the company's own expectations and the Wall Street consensus. The company benefited from the Facebook ad boycott, which seemed to extend beyond July, as well as 4 million new users who joined Pinterest looking for help designing their iPhone home pages after iOS 14 became available, along with a slew of product improvements.
As a result, total monthly active users grew 37% to 442 million, with strong growth in both the U.S. and internationally. U.S. MAUs, which drive the vast majority of the business, rose 13% to 98 million, while international MAUs jumped 46% to 343 million. Average revenue per user (ARPU) also rose by 31% in the U.S. and 66% internationally, and the company's bottom line surge due to improved user monetization and leveraging of fixed costs. Adjusted EBITDA jumped from $3.9 million to $93 million, and adjusted earnings per share surged from $0.01 to $0.13, crushing estimates at $0.02.
Clearly, Pinterest sprinted past every expectation.
2. The product continues to improve
Part of Pinterest's upside potential is that the company has only begun to monetize its platform, as its modest international ARPU shows. However, the growth stock is quickly making improvements that are resonating with both users and advertisers.
Management said that its investments in video are paying off, as unique video uploads jumped 7 times over the previous year, and its introduction of Story Pins, borrowing from the popular Stories format that started on Snapchat, is also seeing rapid adoption. Management explained the appeal, saying, "Story Pins on Pinterest are unique because they show how to do something, rather than merely broadcasting what a Creator is doing."
Meanwhile, it's rolled out tools for advertisers like conversion optimization and shopping ads that have delivered sharp increases in revenue, and enabled a surge in adoption from small-and-medium-sized businesses, as the new features have increased return on advertising spending compared to other advertising platforms.
Pinterest's positioning as a positive ecosystem also seems to be benefiting the company at a time when advertisers have boycotted platforms like Facebook and Twitter over hate speech and misinformation, and as Pinterest is seen as a haven from political turmoil.
3. The momentum isn't slowing down
Pinterest's guidance for the fourth quarter made clear that the company doesn't expect any slowdown this time around, and the fourth quarter, which includes the holiday season, is typically the company's biggest of the year. Management is calling for revenue growth of 60% in the current quarter to roughly $640 million, well ahead of the analyst consensus at $528.8 million.
The company didn't provide guidance on the bottom line, but considering the strong performance in the third quarter, the traction with advertisers, its growing sales force in markets like Western Europe, and a big holiday season expected in e-commerce, Pinterest should deliver strong growth on the bottom line, building on the $0.18 it made in the fourth quarter a year ago.
In addition to the momentum Pinterest itself is generating, the company has been benefiting from other tailwinds including antitrust pressure on Facebook, a general preference for positive ecosystems like Pinterest, and the lasting shift toward e-commerce and social media driven by the pandemic, so it's not surprising that shares of the virtual pin board just surged 30%.
After a disappointing 2019, Pinterest is proving its potential as a unique digital ad platform.