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Should Investors Be Worried About Pinterest's Slowing Domestic User Growth?

By Brian Withers and Brian Feroldi - May 16, 2021 at 6:52AM

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Is the U.S. market tapped out for pinners?

Pinterest (PINS 0.31%) reported a blowout quarter in just about every way except one. Unfortunately, the market latched on to the one number that was disappointing -- its U.S. active user growth -- and punished the stock. On a Fool Live episode recorded on April 28, Fool contributors Brian Feroldi and Brian Withers cover the details of the quarter and how investors should think about domestic user growth for this visual discovery social media platform.

Brian Feroldi: I'm going to be talking about Pinterest, ticker symbol PINS. This company just reported earnings yesterday. Lots to like. Global monthly active users was up 30 percent to 478 million. The company noted particular strength from users under the age of 25. ARPU, average revenue per user, key metric grew 34 percent to a dollar, combine those together, revenue up 78 percent to 485 million exceeding expectations. Non-GAAP earnings were 78 million versus a loss of the year-ago period for 11 cents per share. Wall Street was expecting seven cents, so it was a strong beat on the top and bottom line.

On the conference call, the company noticed that it is seeing huge engagement among its pinners for their shopping platforms. In fact, product-related searches were up 20-fold, where year-over-year, 20 fold. The company deepened its relationship with Shopify during the quarter and then it also started up a new partnership with a company called WooCommerce, which is owned by a company called Automattic. For the quarter ahead, they are predicting a 105 percent revenue growth, 105 percent. However, they are only predicting global monthly average users are going to grow in the mid-teens. If you break that out, they are actually predicting that user growth in the US is going to be flat year-over-year on a percentage basis. That concerned the market and shares fell as a result, that is going to be something to watch.

They did say that they believe that a whole bunch of users were pulled forward, just like we've seen with lots of companies, Netflix, for example, that will be something that I'm paying attention to. I don't want growth to be done in the United States. I still think there's a lot of room left for them to grow. But the big point for them is thesis is largely on track. The company's executing very well.

Brian Withers: Yeah, Brian, it just seemed like they were nailing it on all facets and scaling the business and whatnot. This slowing growth in the U.S. is that something that you're worried about?

Brian Feroldi: Yeah. I don't think the growth in the US is done they're at about 95 million, if last count, out of about 330 million people. I think there is a perception out there, especially among men, that Pinterest is just a platform for women. But I really like that they're picking up new users, especially in the under-25 gang that is going to be a great base of users to get to grow.

I am hopeful that the thing that they're being overly conservative with their guidance and that we do see continued growth. Even if it's very modest, let's say, a million a quarter or something like that. But that is definitely an area for investors to watch.

Brian Feroldi owns shares of Netflix, Pinterest, and Shopify. Brian Withers owns shares of Shopify. The Motley Fool owns shares of and recommends Netflix, Pinterest, and Shopify. The Motley Fool recommends the following options: long January 2023 $1,140 calls on Shopify and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Pinterest Stock Quote
$22.56 (0.31%) $0.07
Netflix, Inc. Stock Quote
Netflix, Inc.
$245.17 (1.67%) $4.02
Shopify Inc. Stock Quote
Shopify Inc.
$36.86 (-1.18%) $0.44

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