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Market Sell-Off: Don't Panic, Buy Pinterest

By Will Healy – Sep 22, 2021 at 10:03AM

Key Points

  • Pinterest did not sell off significantly this week.
  • Concerns about post-pandemic usage have weighed on Pinterest since February.
  • Valuations have reached their lowest levels in over a year.

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The stock's discounted price has little to do with the market's recent behavior.

Amid this September sell-off in stocks, investors need to keep Pinterest (PINS -0.75%) in mind. Concerns about how the company will fare in the post-pandemic world have led to modest drops in domestic usage and a massive decrease in the stock price.

However, while the social media stock experienced a significant decline over several months, its reaction during the September sell-off appears relatively muted. Such a response could imply the worst has ended for Pinterest stock, but investors may wonder whether that signifies a buying opportunity.

A person sits on a porch looking at their smartphone.

Image source: Getty Images.

Pinterest and the sell-off

When looking at the near term, Pinterest does appear to qualify as a "sell-off stock." On Monday and Tuesday, it fell by 4% over those two days, compared with around 2% for the S&P 500. However, Pinterest has spent most of 2021 in a bear market. After an intraday peak of just under $90 per share in mid-February, the stock has decreased by more than 40% over the last seven months. That may explain why Pinterest did not drop dramatically when the massive drop in the indexes occurred earlier in the week.

PINS Chart

PINS data by YCharts

For most of the year, the pressure on the stock has come from COVID-19, specifically how the post-pandemic reopenings would affect Pinterest stock. On the second-quarter 2021 earnings call, CFO Todd Morgenfeld admitted that U.S. monthly active users fell in July by 7% year over year while global MAUs increased by 5%.

Nonetheless, Pinterest's intangibles make it an intriguing investment. Instead of trying to categorize users, Pinterest draws business through raw inspiration. Its users, called "Pinners," pin ideas to their boards. Often, through their search, Pinners are led to ads called "promoted pins."

According to the company, 85% of Pinners turn to the site when starting a project, and 80% of weekly visitors discover new brands and products. Such successes bring in customers that other marketing techniques may not reach and draw significant ad revenue for Pinterest.

Pinterest by the numbers

In the first six months of 2021, that strategy led to revenue of $1.1 billion, an increase of 102% compared with the same period in 2020. Since expenses rose by 32% during this time, Pinterest reported a $48 million net income over the first half of 2021, an improvement from the $242 million loss in the first six months of 2020.

Nonetheless, in Q2, international MAUs rose 13% to 363 million as U.S. MAUs of 91 million dropped by 5%. Still, surging average revenue per user may make up for this relative stagnation. U.S. ARPU rose 103% over the previous 12 months to $5.08, and international ARPU surged 163% during this time to $0.36, indicating revenue can still rise amid sluggish MAU levels.

Moreover, analysts predict third-quarter revenue of $631 million, closely matching the company's forecast of a year-over-year percentage revenue surge in the low 40s. While that would mean slowing increases, growth remains strong considering consumers have returned to more offline shopping.

Additionally, if one looks past the stated current price-to-earnings ratio of 250, the other valuation metrics appear unexpectedly compelling. Pinterest now trades at a forward P/E ratio of just under 50, its lowest forward earnings valuation since the summer of 2020. Furthermore, Pinterest sells for under 15 times sales, its most modest sales multiple in over a year.

Should investors consider Pinterest? 

Despite investor reactions, the last two trading days did not amount to a notable sell-off for Pinterest, and investors may want to consider this stock. Yes, it has experienced a massive drop since February. However, the company appears on track to produce robust growth even if Pinners visit the site less often for a time. In the end, Pinterest remains one of the most compelling growth stories in social media, and its ability to draw interest and sales as it helps fuel imaginations should bolster the stock for a long time to come.

Will Healy has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Pinterest. The Motley Fool has a disclosure policy.

Stocks Mentioned

Pinterest Stock Quote
$22.55 (-0.75%) $0.17

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