No one knows for sure whether a stock's price will be higher or lower in a day, a year, or a decade. That's one reason diversity is an important part of a healthy portfolio. Even so, you'll probably feel more confident about certain investments, and that may affect the way you allocate your money.
For example, Pinterest (PINS -1.55%) is one of my largest holdings. I think this tech company has a unique value offering for both consumers and advertisers, which should help it capture more of the digital ad market over time. Here's why.
The value for consumers
Pinterest started as a place where users could save and organize pins or visual media (including articles, images, and video), creating topical collections called boards. Over time, the company has invested heavily in computer vision and artificial intelligence, transforming the platform into a robust visual search engine built on 300 billion pins across 6 billion boards.
Image source: Getty Images
Pinterest uses technology like AI to identify relationships between pinners (users), pins, and boards. This means users receive personalized suggestions based on their interests. It also means users can search with images instead of text, which allows them to find visually similar products, even if they can't describe them.
To further improve the platform's utility, management has focused on making Pinterest more shoppable. For instance, the company added a shop tab to search results last year, making it easy to go from product to idea to purchase.
In other words, Pinterest is an AI-powered visual search engine, but it's also a tool that bridges the gap between inspiration and action. That makes it unique among social media, while also differentiating it from other search engines and e-commerce sites. That's why Pinterest is so valuable to consumers.
The value for advertisers
People use Pinterest to find inspiration and imagine their future. For instance, a couple might use Pinterest to plan a wedding, exploring ideas for décor, themes, foods, and fashions.
In other words, Pinterest helps marketers reach consumers early in the buying process before they've decided exactly what they want. In fact, 97% of searches on Pinterest are unbranded. From a marketer's perspective, undecided consumers are much more valuable than a person with a specific product in mind.
Pinterest has also created a safe environment for brands. For instance, it banned political ads from the platform in 2018, and it chose not to monetize searches related to the coronavirus in 2020. This separates Pinterest from other social platforms, where tweets and newsfeeds can be filled with polarizing opinions or even hate speech. Put simply, marketing material on Pinterest is much less likely to appear alongside divisive content that could damage a brand's reputation.
The flywheel effect
Pinterest's value to consumers and merchants creates a flywheel effect. As more people join the platform, it becomes a better place to advertise, which brings more brands to Pinterest. And as more brands join the platform, it becomes a better place to find products and ideas, which brings more people to Pinterest.
As this flywheel turns, Pinterest generates more revenue. That allows the company to make bigger investments in its platform, further increasing the value to both consumers and merchants.
This dynamic has powered strong user growth, while also increasing the average revenue per user (ARPU). Together, these forces have compounded to drive impressive top-line performance.
|
Metric |
2017 |
Q1 2021 (TMM) |
CAGR |
|---|---|---|---|
|
Monthly Active Users |
216 million |
478 million |
28% |
|
ARPU |
$2.51 |
$4.34 |
18% |
|
Revenue |
$472.9 million |
$1.9 billion |
54% |
Data source: Pinterest SEC filings. TTM = trailing-12-months. CAGR = compound annual growth rate.
By 2022, digital ad spending is expected to reach $166 billion in the United States and $423 billion globally, according to the International Data Corp. (IDC). That puts Pinterest in front of a massive opportunity, and this flywheel effect should help it capture a good chunk of that market.
A word on risk
Pinterest is not currently profitable, as the company continues to invest heavily in growth. And shares trade at a relatively pricey 24 times sales, so investors should be ready to weather volatility with this stock.
However, Pinterest is unlike any other social media platform, e-commerce site, or search engine. That unique user experience is a big advantage -- it has helped Pinterest gain traction with both consumers and advertisers, and it should power the company to even greater success in the future.
