What happened
Pinterest (PINS 5.03%) stock plummeted 25.4% in July, according to data from S&P Global Market Intelligence. The catalyst was the image-sharing platform's release of its second-quarter report, which disappointed many investors. For context, the S&P 500 returned 2.4% last month.
So far this month, through Aug. 9, Pinterest stock is nearly flat (down about 0.2%) while the S&P 500 is up nearly 1%.
Despite July's big pullback, shares of Pinterest (which went public in April 2019) are up 68.2% over the one-year period through Aug. 9, compared with the broader market's 34.3% return over this period.
Image source: Getty Images.
So what
We can attribute Pinterest stock's weak performance last month largely to some investors being disappointed following the company's July 29 release of its second-quarter 2021 report. It wasn't revenue or earnings that disappointed, but U.S. user growth. Shares dropped more than 18% the next day.
In the second quarter, Pinterest's revenue jumped 125% year over year to $613.2 million, which easily beat the Wall Street consensus estimate of $561.9 million and Pinterest's own guidance of about 105% growth. Adjusted earnings per share were $0.25, compared to an adjusted loss of $0.07 per share in the year-ago period. That result was almost double the $0.13 that analysts had expected.
Pinterest's revenue growth was driven by a 9% year-over-year increase in the number of global monthly active users (MAUs) to 454 million, and an 89% surge in global average revenue per user (ARPU) to $1.32.
What spooked many investors was U.S. MAUs falling 5% year over year to 91 million. Weakness in this metric was widely expected because of the U.S. economy broadly reopening. However, Pinterest had guided for U.S. MAUs to be roughly flat with the year-ago period, as I outlined in my earnings preview, so the 5% decline was likely worse than many investors were expecting.
The U.S. MAU number is closely followed because users in the United States are much more valuable to the company than its international users, as a whole. In the second quarter, while global ARPU was $1.32, U.S. ARPU was $5.08, and international ARPU was only $0.36.
"Our second-quarter results reflect both the strength of our business and the recent shift in consumer behavior we've seen as people spend less time at home," CEO Ben Silbermann said in the earnings release.
Now what
Management guided for third-quarter revenue to grow in the low 40% range year over year. That outlook is in line with the 43% growth the Street had been expecting.
The company didn't provide an outlook for third-quarter MAUs, citing uncertainties surrounding the pandemic. However, in the earnings release, it said: "Engagement headwinds on Pinterest have continued in July. As of July 27, 2021, U.S. MAUs have declined approximately 7% and global MAUs have grown approximately 5% year over year." This U.S. decline was another piece of data that likely spooked some investors.
I'll end as I did my earnings preview: "Investors should try to keep the long-term picture in mind and not overreact to slowing user growth in the U.S. It's to be expected in 2021 after the pandemic-driven surge last year."
