Pinterest (PINS 0.21%) is a social platform for inspiration. It connects users with visual media content, helping them discover new ideas, plan projects, and take action on their dreams. Unfortunately, user engagement has waned in the wake of the pandemic, sparking a sharp sell-off in the stock. Shares of Pinterest now trade 41% below their all-time high.

In this Backstage Pass video, which aired on Oct. 1, 2021, Motley Fool contributor Jon Quast tells investors where to focus when Pinterest delivers its third-quarter earnings report on Oct. 27.

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Jon Quast: For those who don't know Pinterest is a platform, it's a app, it's a website. You can go on there, you can browse pictures and get ideas for projects that you might want to do around your house or just whatever projects in general. It's a way that you can visualize what it is that you are trying to put some ideas to. For me, personally, I'm trying to visualize a fire pit at my house and how I want it to be. I'm searching Pinterest for ideas of what would be cool to incorporate in a fire pit for example. For Pinterest, it's totally different from Twilio in the sense that the name of the game is there needs to be people on the platform browsing because they are monetized by being shown ads. It's a wonderful place to show ads because people are already predisposed, they're looking for things to do around their house. They are predisposed to maybe buy something. It's a great app platform, and it's been growing a lot.

Now, we don't have a date for the upcoming third quarter earnings date yet. It should be the end of October here, any day now we should get an announcement from the company. But just to set the stage, let's talk a little bit of context what's been going on with the business. Over the last four quarters, this is total users, active users on the platform, monthly active users. Third quarter last year had 442 million. The next quarter, 459 million, up 3.8% quarter-over-quarter. Then 478 million, up 4.1%. This most recent quarter, 454 million, down 5% quarter-over-quarter. There was a pullback in user growth -- that's why the stock is down.

However, revenue over the last four quarters started with $443 million, then $706 million, up 59% quarter-over-quarter, even though users were only up 4%. The following quarter, $485 million, down 31% quarter-over-quarter, even though users were still up a little bit. Then this most recent quarter, $613 million in revenue, up 26% quarter over quarter, despite a 5% decline in users. Thank you, Jason, for pulling up that slide. Monetization of users is a big key for this platform. It can actually withstand a drop in active users so long as the monetization is creeping up.

What are we looking for here in the upcoming third quarter? Let me show my slide here. What is management's expectations? Third quarter revenue is expecting to grow in the low 40% range year-over-year. That would put it at its second highest quarter ever for revenue. As of the most recent quarter, it was still seeing users take a step back, creep back. Just for perspective, this doesn't mean that people have left Pinterest. Doesn't mean that they deleted Pinterest, it means that they're not on Pinterest actively searching for things.

Jason Hall: That's a trend, Jon. That's a trend that we saw, not just the Pinterest, but lots of other app-based companies. They were being disrupted by the reality. People were able to start going out and do the things we were doing two or three years ago.

Jon Quast: Precisely. Less time to spend on a platform like Pinterest perhaps, and maybe they'll come back. It will be an interesting thing to see. The other thing that management throughout as guidance was at their expenses are creeping up, their spending money on R&D. They're spending money on international expansion. They didn't necessarily say expenses are creeping up as a percentage of revenue. It'll be interesting to see what the bottom line actually looks like. They're just saying that we're spending more than what we spent last year. Is expenses growing faster than revenue? That'll be an interesting thing to watch. They didn't really give guidance there.

What am I watching for in the upcoming quarter? Number one, international monetization. Remember, we talked about this in the beginning. This is growing fast. Internationally is actually about, if my memory service is roughly 75% of users are international, and yet only $0.36 cents average revenue per user internationally; U.S. users, 14 times more monetized. This is something that they can really grow their top-line if they can increase that international monetization. So you want to see more progress there. In the U.S., you want to see more monetization. They're saying that users are turning down again. That's fine. What is the monetization rate going to look like for U.S. users? $5.08 in the most recent quarter.

Also, gross margin. As this company is growing the topline, it's actually getting more profitable. When it came public, the margins were in the mid-60% range, now it's approaching 80% gross margin. That's actually really good. You want to see that continue to trend up.

Then, stock-based compensation; I put this on here because this was something that was really high for Pinterest as it became a public company. Since mid 2019, the share count is actually up 27% as they have paid out their employees and stock-based compensation, that should be starting to abate. I'm hoping that we see that here in the coming quarter. That is what I'm looking for with Pinterest.