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This Fact Makes Pinterest's Disappointing Quarter Look Worse

By Parkev Tatevosian, CFA – Aug 5, 2021 at 12:38PM

Key Points

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The social media company reported a surprise loss in monthly active users in the second quarter.

Pinterest (PINS -0.18%) reported second-quarter earnings on July 29 that disappointed investors. After several quarters of growing monthly active users (MAUs), it announced a surprising 24 million drop in the metric. 

Management expected that when economies reopened, it would harm engagement on Pinterest, but it didn't expect the decline to be this bad. To make matters worse, rival Snap (SNAP -1.27%) reported an increase in a similar metric just a few days before. 

A man looking at this phone.

Image source: Getty Images.

On to other things 

For social media companies like Pinterest, users and user engagement are the name of the game. Advertisers want to gain people's attention and are willing to pay for the opportunity. The price they'll pay varies by demographics. Users from the U.S. are more coveted by businesses because of their higher purchasing power. 

That's what made Pinterest's quarter so dismal for shareholders. Of the 24 million lost MAUs, 7 million were in the U.S. The average revenue per user (ARPU) the company generates is $5.08 in the U.S. and $0.36 internationally, meaning one domestic user earns about 14 times that of an international user.

Management attributed the MAU loss to reopening trends worldwide. Understandably, as folks had more options for what they could do with their time, they spent less of it on Pinterest. 

The competition did well 

To put salt into the wound, Snap reported an increase in daily active users (DAUs) a few days before Pinterest announced its losses. Snap added 2 million DAUs in North America, 1 million from Europe, and 9 million from the rest of the world.

It experienced the same reopening trends that Pinterest went through but did not shed users in the process. If reopening economies led users to stop using Pinterest, how come they didn't cause the same thing at Snap? 

The contrasting outcome highlights the possibility there is more to the losses at Pinterest. It could be connected to the purposes people go to Pinterest for -- things like looking up recipes or home decor ideas fell out of favor as folks went out more often. 

What this could mean for investors 

There is no telling if more MAU losses will come for Pinterest. If this is the beginning of a trend lasting several quarters, the stock price could have more room to fall. It's already down over 20% since reporting results. 

Still, the long-run viability of the company remains. It is an inspirational social media platform in a field that has few. More folks go to the company's site when they intend to purchase something compared to rival sites. And it's still in the beginning stages of monetizing its user base -- evidenced by its ARPU of $1.32 compared to $3.35 for Snap in their most recent quarters. 

Investors able to hold through the short-term volatility as economies reopen and settle into a new normal could be in for sizable rewards in years to come. 

Parkev Tatevosian owns shares of Pinterest. The Motley Fool owns shares of and recommends Pinterest. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pinterest Stock Quote
Pinterest
PINS
$22.68 (-0.18%) $0.04
Snap Stock Quote
Snap
SNAP
$9.30 (-1.27%) $0.12

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