While the COVID-19 pandemic resulted in overall 2020 advertising spend declining from the previous year, it didn't prevent Pinterest (PINS -1.13%) -- which relies on advertising for its revenue -- from exiting the year with strong financial performance.
That strong performance helped the stock price rise from a low of $13.38 a share in April 2020 to a high of $89.90 in February. Pinterest's stock price has since dropped during the recent tech sell-off, but it still hovers around $69 a share at the time of this writing.
Does that suggest that Pinterest stock is worth buying now? Let's unpack where this social media image sharing platform is today to evaluate int potential opportunity as an investment.
Pinterest is entering 2021 with strong momentum
Pinterest ended 2020 by delivering a 76% year-over-year jump in fourth-quarter revenue. The result capped a roller coaster year.
The pandemic's impact on advertising spending caused the company's revenue -- as well as the revenue for most social media platforms -- to fall in the first half of 2020 before rebounding strongly in the second half.
A confluence of events allowed Pinterest to end 2020 with stellar performance. Pandemic-related stay-at-home requirements caused a surge in internet use that accelerated growth in monthly active users (MAUs). Pinterest had 26% year-over-year MAU growth in 2019, and MAUs increased by 37% in 2020, going from 335 million to 459 million.
Although ad spend cratered when the pandemic struck, advertisers gradually ramped spending back up as 2020 progressed. Pinterest's advertising products, which go beyond traditional banner ads, positioned the company to take advantage of this renewed ad spend interest.
It offered shopping capabilities, enabling advertisers to upload their products to Pinterest and promote them through shopping ads. These features allow advertisers to generate sales through Pinterest while the format naturally complements Pinterest's visual experience.
Shopping ads were particularly potent during the fourth-quarter holiday shopping season. As a result, shopping-ad income grew faster than the company's overall revenue. CEO Ben Silbermann called Pinterest's shopping capabilities "really important," and the company plans an expansion of its U.S. shopping features into international markets.
The international part of its business played a key role in Pinterest's fourth-quarter success. International revenue during the quarter grew 145% year over year while international MAUs rose 46%.
The company's average revenue per user (ARPU) in international markets increased 67% year over year, although that $0.35 ARPU is well below the U.S. ARPU's $5.94. As Pinterest continues to ramp up revenue efforts internationally, that ARPU figure should continue to rise.
Pinterest has solid financials and products
Many tech companies operate for years without a profit. Pinterest was in that camp until its stellar fourth quarter resulted in net income of $207.8 million, a dramatic turnaround from the previous year's net loss of $35.7 million.
Its net income complements a strong balance sheet. Fourth-quarter total assets of $2.6 billion far exceeded its total liabilities of $367 million. It also amassed $669 million in cash and equivalents, putting it in good position to weather the pandemic.
The fourth-quarter success comes on the heels of the company's investments in its product suite. I was an early Pinterest adopter, and saw how it evolved from a simple online pinboard into a vehicle for immersive content.
Pinterest introduced its latest concept, Story Pins, last September. The format allows users to inject a narrative into the content they upload to Pinterest using images, video, and text.
These types of product enhancements aim to increase user engagement and time spent on the site. The more users stay and use Pinterest, the more the company can earn in ad revenue. This is illustrated in the fourth-quarter results for its U.S. market, where MAUs remained effectively unchanged from the third quarter yet revenue and ARPU rose significantly.
|Metric||Q3 2020||Q4 2020|
|U.S. Monthly Active Users||98 million||98 million|
|U.S. Revenue||$374 million||$582 million|
|U.S. Average Revenue Per User||$3.85||$5.94|
The final verdict
Pinterest has a lot going for it, making the stock a buy. The company's evolution from a simple online pinboard allowed it to achieve strong revenue results in 2020 that will continue into 2021. It expects another quarter of more than 70% year-over-year revenue growth in the first quarter.
There's room for continued international user and revenue increases. Pinterest keeps evolving its offerings, and now users can not only collect ideas for products in categories such as fashion and home decor, but they can also use it as a jumping-off point to buy those products.
By continually advancing its product suite and international expansion, management is making the moves that garner revenue and user growth. The company still has plenty of opportunities as it continues to capitalize on its current product and international successes. These factors make Pinterest a compelling investment.