Pinterest (PINS +1.72%) stock is catching a lot of buzz recently, but not for a good reason. The company reported less than stellar results in its second-quarter earnings announcement late last week that sent the stock crashing.
The focus of the disappointment was on the loss of monthly active users (MAUs). As economies reopened during the quarter, folks spent less time engaging with Pinterest. The result was a loss of 24 million MAUs for the quarter and a stock price that fell nearly 18% in trading on Friday.
Image source: Getty Images.
Pinterest shed users as economies reopened
Pinterest started the second quarter with 478 million MAUs. Since the onset of the pandemic, the company had been experiencing a surge in new user signups and increasing engagement from existing ones. That trend reversed during the second quarter when the company reported it lost 24 million MAU. Still, Pinterest has a total of 454 million MAU, and it's quite possible the users it lost in the quarter will come back.
In addition to the second quarter containing a massive reopening of economies, it was also during the warmer months of the year when folks spend more time outdoors anyway. Factors in play right now, like the rise of COVID-19 infections led by the delta variant, could slow the speed of reopening. And as colder weather returns in the fall, folks will spend more time at home compared to summer. The two trends could help Pinterest recapture some of the users it lost during Q2. Keep in mind that losing a monthly active user means the person did not log on to their account during the month. It does not necessarily mean the person deleted the account.
A silver lining in economic reopening for Pinterest is that advertisers are ramping up spending. The burst allowed Pinterest to beat revenue estimates for the quarter and report a whopping 125% increase from the year before. The boost may be short-lived, however, if Pinterest continues shedding MAUs. Marketers pay to get people's attention. The more people you have on your site, the more advertisers will pay.
The average revenue per user (ARPU) increased both in Pinterest's domestic region and internationally. In the U.S., ARPU increased by 103% to reach $5.08, and internationally, it increased by 163% to reach $0.36. The higher growth in international ARPU helped close the gap between the two slightly. However, users from the U.S. still generate 14 times more revenue than international users. Unfortunately, 7 million out of the 24 million MAU shed in the quarter were from the U.S.
What this could mean for investors
The bigger question here still unanswered: Was the drop in MAUs a one-off event, or will it continue as economies reopen? If Pinterest can stop the bleeding and return to MAU growth, it will do wonders to alleviate this concern.
The stock is now trading at a price-to-sales ratio of 16.67, about half of what it was trading earlier in the year. Zooming out from focusing on the immediate term, Pinterest is growing revenue rapidly. Over the last three years, it grew revenue at 59.9%, 51.2%, and 48.1% respectively. And so far in 2021, Pinterest is on pace to exceed those levels of growth. Even in the unlikely scenario where Pinterest is no longer growing MAUs, the company can still grow revenue from increases in ARPU.
Potential investors should keep in mind that the stock is riskier now and likely to be more volatile with the uncertain MAU growth trend and that this will be the case at least until its next quarterly report.
