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Should Pinterest Investors Be Worried About User Growth?

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

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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 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.

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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.

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