Pinterest's (NYSE:PINS) stock soared more than 250% in 2020 as it gained over a hundred million new users throughout the pandemic. Its virtual pinboards -- which allow users to share their hobbies, interests, and shopping ideas -- attracted a lot of eyeballs as more people stayed at home. Retailers also uploaded more of their products to Pinterest as shoppable pins.

That growth showcased Pinterest's potential as a visual search engine and a social shopping platform, and differentiated it from other social networks like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR). Pinterest's focus on hobbies and ideas also insulated it from the controversies regarding fake news and hate speech that plagued Facebook and Twitter.

Pinterest's iPad app.

Image source: Pinterest.

Yet Pinterest's stock has stayed nearly flat this year. It got off to a strong start and hit an all-time high of nearly $90 in February, but tumbled to the mid-$50s in May before rebounding to the high-$60s. That decline was largely attributed to the rotation from growth to value stocks, as well as a preference for reopening plays over pandemic stocks. That trend could continue throughout the rest of the year, but should long-term investors buy Pinterest anyway?

Pinterest is still growing like a weed...

Pinterest's monthly active users (MAUs) increased 37% to 459 million at the end of 2020. That growth continued in the first quarter of 2021, as its MAUs rose another 30% year-over-year to 478 million. Its average revenue per user (ARPU) and total revenue also continued climbing at high double-digit rates.

Growth (YOY)

FY 2019

FY 2020

Q1 2021

MAUs (US)

8%

11%

9%

MAUs (International)

35%

46%

37%

MAUs (Total)

26%

37%

30%

ARPU (US)

24%

27%

50%

ARPU (International)

115%

62%

91%

ARPU (Total)

21%

12%

34%

Revenue

51%

48%

78%

Data source: Pinterest. YOY = Year-over-year.

But it could hit a few speed bumps soon

However, Pinterest's 78% revenue growth in the first quarter reflects its easy year-over-year comparison to the pandemic's initial impact on its advertising business a year ago. That's also why its expectations for 105% year-over-year revenue growth in the second quarter aren't all that impressive.

For the full year, analysts expect Pinterest's revenue to rise 53% to $2.6 billion, which would still represent accelerating growth from 2020, and increase another 33% next year. That outlook is promising, but Pinterest's latest quarterly report had a few notable flaws.

First, Pinterest's MAU growth in the first quarter of 2021 actually marked its slowest year-over-year growth in four quarters. Second, its MAU growth in the U.S. has stalled out sequentially at 98 million for three straight quarters.

Therefore, Pinterest is relying more heavily on its international users, who accounted for 79% of its total MAUs last quarter, to drive its growth. But its international users generate lower ARPU than its domestic users, and they only contributed 20% of its revenue during the quarter.

Pinterest expects its U.S. MAUs to remain flat year-over-year and decline sequentially to about 96 million in the second quarter. It expects its total MAUs to only grow by the "mid-teens" -- which implies its growth in international MAUs will also cool off.

Looking beyond the pandemic

The bulls will attribute most of that slowdown to tough post-pandemic comparisons, and claim Pinterest's growth will stabilize over the long term.

After all, retailers like IKEA have already uploaded their entire print catalogs to Pinterest as shoppable pins, and its pinboards have carved out a high-growth niche in the crowded social networking market. It also easily deflected competition from challengers like Hobbi, Facebook's short-lived Pinterest clone.

Furthermore, many other social networking companies, including Facebook and Twitter, also serve more overseas users but generate most of their revenue domestically. Pinterest plans to boost its overseas ARPU as it expands into new markets in Latin America and Asia, and that growth could gradually reduce its dependence on the saturated domestic market.

A sequential slowdown in users also doesn't indicate Pinterest is doomed. Snap's (NYSE:SNAP) Snapchat faced a similar slowdown throughout 2018 after Facebook's Instagram cloned many of its features, but it overcame those challenges the following year and started growing again.

Pinterest's profitability also continues to improve, in GAAP, non-GAAP, and adjusted EBITDA terms.

Metric

FY 2019

FY 2020

Q1 2021

GAAP Net Income (Loss)

($1.36 billion)

($128.3 million)

($21.7 million)

Non-GAAP Net Income (Loss)

$17.9 million

$283.2 million

$78.5 million

Adjusted EBITDA

$16.7 million

$305.0 million

$83.8 million

Data source: Pinterest.

Analysts expect Pinterest's adjusted earnings to rise 117% this year, then grow another 44% next year. Based on those estimates, the stock still looks reasonably valued at just over 50 times forward earnings.

Don't listen to the bears

The bears will claim Pinterest is a fad, and that its growth will permanently decelerate after the pandemic ends. But I don't agree with that gloomy outlook.

Pinterest is already bigger than Snapchat -- and also likely larger than Twitter, which no longer discloses its MAUs -- and it doesn't face any meaningful competitors. Pinterest might face some growing pains, but its stock remains undervalued relative to its growth potential in the visual search and social shopping markets.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.