Pinterest (PINS 1.02%) has been experiencing surging use and new-member growth since the start of the pandemic. Entertainment options are still mostly limited to people's homes, and spending time on Pinterest is becoming more popular.
Coronavirus cases have risen worldwide since the company last reported, as have regional and local stay-at-home orders. That could mean a continuation of surging usage. Moreover, marketers are ramping up spending in anticipation of businesses reopening as the population is vaccinated. Here are three things you will want to know when Pinterest announces its fourth-quarter earnings on Feb. 4.
1. How much is revenue growing?
The first thing to look at is overall revenue growth. Pinterest is increasing it rapidly, and this quarter is not expected to be any different, as it guided for a 60% increase.
Overall advertising industry spending bounced back in the third quarter of 2020 after falling precipitously at the pandemic's onset. And Pinterest could see sales continue to surge as advertisers ramp up spending to pre-pandemic levels throughout 2021.
Some of its growth is tied to the easing of economic restrictions and other lockdown measures, since the more that business activity returns to pre-pandemic levels, the bigger the surge will be in advertising.
2. Where are new users coming from?
Second, and perhaps equally as important, will be monthly active user growth. Pinterest has a total of 442 million users. Interestingly, 84.4% of revenue comes from the U.S., even though only 22.2% of users are from this country.
It will be crucial to look at the composition of new user growth to see how much of it came from the higher-valued domestic market. If it adds more members from the U.S. than usual, look for its overall average revenue per user to increase.
3. Will advertisers relocate from Facebook and Twitter?
Lastly, look for management to discuss any benefit it's getting from advertisers leaving Facebook and Twitter. The two companies faced bad publicity during election season, and advertisers may have looked for a better environment to migrate to. Pinterest mentioned it did benefit from the advertiser boycott of Facebook in its second quarter.
Moreover, some brands may be getting fatigued with continuous problems at Facebook, which could cause them to stop or reduce advertising on the platform permanently. Indeed, Pinterest management thinks that its brand safety relative to other social media companies is a long-term competitive advantage.
What this could mean for investors
Average analyst expectations on Wall Street are for Pinterest to report revenue of $644 million and earnings per share of $0.32, which would be increases of 61% and 267%, respectively. That goes to demonstrate the scale of the rapid growth it's achieving. With such high expectations from Wall Street, any sign that the growth potential is decreasing when the company reports could send the stock lower.
Still, investors with a long-term mindset looking for a fast-growing business can add Pinterest to their list of stocks to watch. And if there is a pullback in the share price following the report, it could be an excellent buying opportunity.