Pinterest (PINS) lost more than a quarter of its value this year as its slowing user growth spooked the bulls. Should investors consider that sell-off a buying opportunity, or should they stay away? Let's weigh three reasons to buy Pinterest against one reason to sell in order to decide.

1. Its ARPU is still rising

The market turned against Pinterest after it released its Q2 2021 report in late July, which revealed a sequential drop in monthly active users (MAUs). Its MAUs rose 9% year over year to 454 million, but declined from 478 million in the first quarter and 459 million in the fourth quarter of 2020.

However, Pinterest's average revenue per user (ARPU) still rose 89% year over year and 27% sequentially to $1.32 during the second quarter. Its ARPU rose as its MAUs declined primarily because it lost desktop users, who were more difficult to monetize than its higher-growth mobile users.

Person sits on couch while navigating Pinterest's app.

Image source: Pinterest

If Pinterest's ARPU continues to climb, it could offset its slower growth in MAUs and boost its total revenue. That's why analysts still expect its revenue to rise 55% this year and 31% next year.

2. Its profitability is improving

Pinterest generated a GAAP net income of $47.7 million in the first six months of 2021, compared to a net loss of $241.9 million a year earlier. It also generated a positive adjusted EBITDA of $262 million, compared to an adjusted EBITDA loss of $87.2 million a year ago.

Those rising profits indicate Pinterest's growth is sustainable. It will likely spend less money on marketing efforts as its platform expands, and secure more favorable cloud hosting rates as its scale improves.

Wall Street expects Pinterest's non-GAAP earnings to jump 152% this year and increase another 31% next year. Those the kind of impressive growth rates that a stock trading at 47 times forward earnings needs to show.

3. Its niche is defensible

Pinterest carved out a niche with its virtual pinboards, which let people share photos and videos of ideas, interests, and hobbies. Its visual format made it a natural fit for ads and shoppable pins. That's why big retailers like IKEA uploaded their entire catalogs to Pinterest, and why Shopify (SHOP -1.07%) partnered with Pinterest last year to enable its online merchants to use shoppable pins.

Those partnerships grant Pinterest an early-mover's advantage in the nascent "social shopping" market, which blurs the lines between social networks and e-commerce platforms. They also widen its moat against Facebook (META -0.82%) and its image-oriented platform Instagram.

Facebook tried to challenge Pinterest with Hobbi, a similar platform for curating ideas, last year. However, the company quietly killed off Hobbi a few months later after it failed to gain any traction against Pinterest. Facebook's failure indicates Pinterest's niche market is defensible -- and it could continue to grow as more people seek out fresh ideas on its pinboards.

The one reason to sell Pinterest: Its uncertain future

Pinterest's growth accelerated through the pandemic as more people stayed at home, but decelerated as people started going back to their normal lives. The bulls will claim Pinterest's growth, like the growth of many e-commerce companies during the pandemic, was merely pulled forward -- and that its year-over-year comparisons will gradually normalize.

The bears will claim Pinterest is a passing fad that temporarily benefited from stay-at-home boredom, and that interest in the platform will wane after the pandemic ends. Back in July, Pinterest warned investors that its MAU growth would likely remain sluggish during the third quarter.

That warning has weighed down the stock ever since, and it probably won't rally again until its MAU growth stabilizes for several straight quarters. Therefore, it might be premature to buy Pinterest -- and more prudent to avoid it -- until that actually happens.

Do Pinterest's strengths outweigh the weaknesses?

I personally own some shares of Pinterest, and I won't sell my stake just because the platform's MAUs declined as COVID-19 restrictions were relaxed.

I still believe Pintetest's strengths outweigh its weaknesses, and that investors who don't already own the stock can consider starting a small position at these lower prices. However, investors should subsequently keep an eye on its growth over the next few quarters before adding or selling more shares.