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3 Bright Spots in Pinterest's Earnings Report

By Jeremy Bowman – Aug 2, 2021 at 8:40AM

Key Points

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Despite the sell-off, there were a number of positive signs.

Pinterest (PINS 2.39%) got slammed Friday as the social media company posted a surprise decline in U.S. monthly active users.

MAUs in the U.S., where the majority of its sales come from, fell from 96 million a year ago to 91 million. On a sequential basis, they were down from 98 million at the end of the first quarter. The company also warned that the decline had continued into July, saying that as of July 27, U.S. MAUs had fallen 7% and global MAUs were up just 5%, compared to 9% growth in 2021's second quarter.

That news was enough to spark an 18% sell-off in the stock on Friday. Still, there were plenty of reasons to be enthusiastic about the report. Let's take a look at three of them.

A person looking at Pinterest on an iPad.

Image source: Pinterest.

The financials were spectacular

Pinterest's domestic user base might have declined, but you wouldn't know it by looking at the dollar figures. Revenue soared by a whopping 125% to $613.2 million, easily beating estimates at $561.9 million. Average revenue surged as well, climbing from $2.50 to $5.08 in the U.S. and internationally from $0.14 to $0.36, as the company is just starting to monetize its user base outside the U.S.

Increased advertiser interest, new products like story pins and idea pins, and better advertising tools such as automatic bidding all contributed to the surge in revenue. Management noted that it saw strong growth from large retail advertisers as well.

Results on the bottom line were just as impressive. It flipped an adjusted EBITDA loss from the quarter a year ago of $34 million to an EBITDA profit of $178 million, good for a margin of 29%. On a generally accepted accounting principles (GAAP) basis, it reported net income of $69.4 million, or an 11% margin. On a per-share basis, net income was $0.10.

The second quarter is seasonally the slowest in engagement, so those margins should improve in the second half of the year.

It's gaining momentum in e-commerce

Pinterest is different from other social media platforms because users come to the site to work on themselves rather than connect with other people. Because Pinners, as the company calls its users, often come to Pinterest with purchase intent related to something like clothes, home goods, or DIY projects, the site is especially appealing to advertisers and lends itself well to e-commerce.

The company continues to make progress in making its site more shoppable. Catalog uploads grew nearly 50% on a sequential basis in the second quarter, giving the company much more inventory, and it expanded its integration with Shopify to international merchants. This quarter, it's planning to launch an integration with Automattic's WooCommerce.

Additionally, it launched a new feature called Shopping List, which allows Pinners to save product pins in one place. Altogether, these efforts are helping Pinterest unlock a huge addressable market that it is uniquely positioned to capture.

The reopening wasn't all bad

In the second quarter a year ago, user growth soared but revenue growth stalled. The economic reopening seems to have had the opposite effect. While some of Pinterest's users abandoned the platform to spend more time out of the house socializing, advertisers were beckoned by the opportunity in the recovery as activities like weddings, travel, and restaurants have returned.

Management noted, "demand stemmed from the easing of COVID restrictions around the world," and said emerging ad verticals like travel helped lift its growth rate. Interest from large advertisers was also significant, potentially showing large brands wanting to capitalize on the energy and pent-up demand in the reopening.

Many advertisers have likely become familiar with Pinterest during the pandemic, and the opportunity it's had to showcase its unique platform has likely helped expand its advertiser base. 

For the third quarter, the company expects revenue growth in the low 40% range, a sign that ad demand remains strong even as user growth is still weak. The lumpiness in the company's growth will take a few quarters to work itself out, but it's a mistake to look at the second-quarter earnings report and panic about user growth. There's plenty of good news here.

Jeremy Bowman owns shares of Pinterest. The Motley Fool owns shares of and recommends 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.

Stocks Mentioned

Pinterest Stock Quote
Pinterest
PINS
$23.16 (2.39%) $0.54
Shopify Stock Quote
Shopify
SHOP
$38.38 (-0.67%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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