Pinterest (NYSE:PINS) is a social media website that enables millions of users to discover ideas for almost anything imaginable. Interested in remodeling your kitchen? There are tons of posts on that topic! Want to learn about the latest fashion trends? Pinterest has you covered there too!
The value behind Pinterest stems from the visual experience it provides to its users, its ongoing curation of personalized content, and how it allows its users to act when they see something of interest. The company has grown at a fast rate in recent years, but still has plenty of opportunities to capture more revenue and improve upon its user experience. Here are three of them.
1. Improve the monetization of international users
Like other social media websites such as Facebook, Pinterest generates revenue by selling advertising on its website. As of the third quarter of 2020, Pinterest counted 442 million global monthly active users ("MAUs"), which are users who visit the platform at least once a month. This is a huge audience for advertisers to market to!
|Pinterest Metrics||Q3 2020||Q3 2019||YOY % Change|
|Global MAUs||442 million||322 million||37%|
|United States MAUs||98 million||87 million||13%|
|International MAUs||343 million||235 million||46%|
Interestingly, the vast majority of Pinterest's users are located outside of the United States. In fact, the company has 343 million MAUs outside the U.S., and that cohort of users is growing faster than domestic users. However, the company has had much more success in generating revenue from its U.S. users. The average revenue per user ("ARPU") for foreign users was just $0.21 in Q3 2020, compared to revenue of $3.85 per U.S. user in the same quarter. In other words, U.S. users generate 18 times more revenue per user than foreign users.
|Pinterest Metrics||Q3 2020||Q3 2019||YOY Change %|
|United States ARPU||$3.85||$2.93||31%|
The gap in monetization between U.S. users and foreign users presents an interesting opportunity. If Pinterest can improve the monetization of international users, it can drive significant revenue growth. The company is aware of this immense opportunity and noted that it is building out its sales team in Europe to improve its advertising sales in the region. This effort will be interesting to monitor in the coming year.
2. Video content expansion and advertising products
Historically, Pinterest's website has focused mostly on pictures, but the company has recently prioritized adding more rich media content such as video, image gifs, and interactive posts.
In 2020, video content, in particular, has been a major focus. The company noted in its most recent earnings release that video uploads grew sevenfold compared to the same period last year. This was accomplished by providing better video publishing tools that enable content creators to publish video posts more easily.
Video content is interesting for a couple of reasons. First, video tends to be more engaging than text and photos, which can attract more users to Pinterest and keep existing users on the website longer. Second, video advertising rates tend to be higher than text and picture ads, which could help drive additional revenue growth for Pinterest.
3. Automatic advertising bidding
Diversifying the advertiser base is another focal point for Pinterest. One way the company has highlighted accomplishing this is by adding a self-service advertising tool. Until recently, Pinterest has primarily used its salesforce to bring advertisers on its platform, but a self-service tool allows advertisers to buy advertising on their own.
To make its self-service advertising product more accessible, Pinterest has invested in an automatic advertising bidding tool. What this means is that advertisers can set up a campaign on Pinterest with certain parameters -- for example, how much they are willing to pay for ads and what types of customers they would like to reach. The automatic bidding tool will then buy ads on the website when the campaign parameters are met. This is beneficial for all parties because it helps Pinterest sell more ads and it provides better targeting for advertisers.
Since the launch of automatic bidding in July of 2020, the company has noted that advertisers have increased their spending budget. This is a good sign that Pinterest is able to provide better value for advertisers by improving its offering. Of course, the company is still working on improving its advertising tools, and investors should expect more updates on this front in the coming quarters.
Full steam ahead
Pinterest has a lot of irons in the fire that can help it continue its revenue growth momentum. Each one of these initiatives is impressive on its own, but in combination, they paint the picture that the company is doing a lot of things right and executing a smart growth strategy. Investors should continue to monitor how these various efforts progress over the coming quarters and look to see what else the company can do to build upon the strong platform it has created. If growth metrics continue moving in the right direction, then it shouldn't be a surprise if the company's stock price continues to follow its upward trend.