Pinterest (PINS -0.68%) shareholders have had a rough year. The stock is down 15% year to date, underperforming the broad market by a wide margin, and shares are down 38% from their 52-week high. In situations like this, it's okay to revisit your investment thesis, but it's also important to maintain a long-term mindset and make rational decisions.

For what it's worth, I'm a Pinterest shareholder, and I have no plans to sell. In fact, now looks like a good time to buy a few shares. Here's why.

A Pinterest user browses the app on a tablet

Image source: Pinterest.

Pinterest's value proposition

Unlike other social media, Pinterest is designed for inspiration. Its AI-powered platform helps people discover new ideas and visualize their dreams. For instance, you might use Pinterest to find tips on building a home office, planning a barbeque, or joining a gym. In turn, that creates a good opportunity to serve ads for office supplies, kitchenware, or athletic apparel.

More importantly, because Pinterest allows people to create and engage with media content in numerous ways, the company has a keen understanding of its users' tastes and preferences. That information powers Pinterest's AI models, creating a more personalized user experience over time. In other words, brands and marketers can use that first-party data to target ads to the appropriate audiences.

Here's the big picture: 89% of Pinterest users are actively looking for purchase inspiration, according to Sprout Social, which means ads fit organically into the platform. In fact, the company claims ads on its platform result in 2.3 times more efficient cost per conversion than ads on other social media.

To reinforce that value proposition, Pinterest has focused on improving the experience for both brands and consumers. Last year, the company made it possible to shop directly from pins (images), boards (collections), and search results, integrating its platform more tightly with e-commerce. Pinterest also launched new tools for marketers, allowing them to automate ad campaigns and measure results more effectively.

These efforts have helped accelerate the flywheel that powers its business. As more people use Pinterest, brands benefit from a wider audience; and as more brands advertise on Pinterest, users benefit from a greater selection of shoppable content. This dynamic should continue to fuel growth for the company long term.

Pinterest's financial performance

During the second quarter, Pinterest saw increased demand from large retail advertisers, and revenue surged 125% to $613 million. At the same time, international revenue skyrocketed 227%, demonstrating the progress the company is making outside of its core geography. Pinterest also posted earnings of $0.10 per share, reversing the year-ago quarter's loss of $0.17.

So why is the stock down nearly 40% since hitting its 52-week high in February? Investors are worried about user growth. In the most recent quarter, global monthly active users (MAUs) increased just 9% year over year, and U.S. MAUs actually dropped 5%. Management also declined to provide third-quarter guidance for this metric, citing uncertainty around the reopening of the economy.

Of course, that spooked the market, but this shouldn't have been a surprise. After social distancing kept people at home for over a year, it's only natural that engagement should wane, and things might even get worse in the next quarter or two. But management is executing on a strong growth strategy, and I fully expect the situation to normalize over the next year.

For instance, Pinterest plans to pilot on-platform transactions later this year. This will reinforce the company's burgeoning role as an e-commerce discovery tool, enhancing its value to both brands and consumers. If successful, Pinterest could become a go-to place for online shopping. The company may even enter the digital payments market.

Here's the bottom line: Pinterest blends artificial intelligence, visual media, and e-commerce, creating an experience unlike any other social network, search engine, or marketplace. That gives the company optionality, meaning it could easily branch into adjacent industries. But even if that doesn't happen, Pinterest is well positioned to capture more digital ad spend in the years ahead, an industry that eMarketer values at an enormous $455 billion.

That's why this growth stock looks like a smart long-term investment.