Please ensure Javascript is enabled for purposes of website accessibility

Should Pinterest Investors Be Worried About User Growth?

By Matthew Frankel, CFP® – Oct 12, 2021 at 6:21AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pinterest's second quarter numbers scared investors, but there's more to the story.

Most people expected Pinterest's (PINS -0.16%) growth to slow down a bit as the world started to reopen, but when the company reported negative growth in U.S. active users in the second quarter, it frightened investors. However, as Fool.com contributor Matt Frankel, CFP, explains in this Fool Live clip, recorded on Sept. 30, it's important to realize that short-term user growth is only one piece of the puzzle.

10 stocks we like better than Pinterest
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Pinterest wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of September 17, 2021

 

 

Matt Frankel: I wanted to talk about Pinterest, one of my favorite stocks, one of my biggest personal holdings. And at first glance, it might sound like things are not going very well for them. This is a social media stock but with a declining user base. That's not something you generally want to hear. But when you think about declining from what? What were we all doing for the year from roughly March 2020 to March 2021. We were sitting inside playing on our phones, playing on our computers, playing on our tablets, watching TV, trying to pass the time without being social. The result of that is we found platforms like Pinterest.

Pinterest's user growth was fantastic during the pandemic. It was somewhat expected to taper off the growth once things started to really reopen, which I say really happened on a large scale on April or May of this year. What we saw was that Pinterest monthly active users actually fell by 5% between the first and second quarter. That's about 20 million fewer people that were actively using the platform. Monthly active users in the U.S., actually, the Pinterest said they declined 7% year-over-year in July meaning that in July 2020, seven percent more people in the US were using the platform. But we're still up globally 5% year-over-year.

As we mentioned, this was somewhat to be expected as the pandemic slowed down. It was a little worse than people thought it was going to be. The question going forward is will there be a boost in the third quarter? Will this slowdown really slowdown? I guess you would say. Is the Delta surge really going to maybe cause a surge of joining the platform?

But the real key, more important to me than whether or not users continue to grow at a double digit rate year-over-year is whether monetization continues to grow. Pinterest has done a great job increasing monetization recently. The average Pinterest international user generates just about 6% or 7% the revenue of the average U.S. user. A very minuscule amount, and that's 80% of their user base. If they can really work on monetization, they can absorb a 5% hit in user growth if they can double how much they're making from their average user. I'm not too worried about Pinterest, but I'm paying more attention now than I was a year ago.

Matthew Frankel, CFP owns shares of Pinterest. The Motley Fool owns shares of and recommends Pinterest. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Pinterest Stock Quote
Pinterest
PINS
$24.99 (-0.16%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
360%
 
S&P 500 Returns
118%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.