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Why Pinterest Stock Plunged This Week

By Jeremy Bowman – Oct 28, 2021 at 6:00PM

Key Points

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The end of the PayPal deal weighed on the stock.

What happened

Pinterest (PINS -5.57%), the image discovery-based social platform, was getting hit on multiple fronts this week as social media giant Facebook warned about slowing revenue growth, and PayPal Holdings (PYPL -1.66%) said it was no longer interested in acquiring Pinterest after Bloomberg reported last week that the two parties were in talks for a deal at $70 a share.

By Thursday, the social media stock had given up 21.4% for the week.

A woman looking at a Pinterest board on her iPad

Image source: Pinterest.

So what

PayPal's announcement seemed to be the main reason the stock sunk. The fintech giant said on Monday that it was no longer pursuing a buyout of Pinterest. That news sent PayPal shares higher after a two-day slump, but Pinterest unsurprisingly fell. The stock had originally popped by double digits last week when the news broke, though it never got close to the rumored $70 price tag.

Pinterest shares lost 12.8% on Monday, which added to concerns that it was a broken stock following a surprising decline in users in the second quarter.

On Tuesday, the stock fell again after Facebook reported slower-than-expected revenue growth in the third quarter and warned on headwinds around Apple's ad-tracking changes and supply chain issues in the fourth quarter. That news dragged Pinterest down 5.5% as it was the second social media company to make such a warning after Snap issued disappointing guidance last week.

Now what

The end of PayPal-Pinterest talks dealt a short-term blow to Pinterest investors, sending the stock to a 52-week low, but it's probably a good thing over the long term as the virtual pinboard still seems to have a bright future, and the business case for a combination with PayPal looked weak. 

The company will report third-quarter earnings next Thursday, but expectations are likely subdued after disappointing results from Facebook, Snap, and Twitter. That the company was even considering selling itself to PayPal also seems to signal a weak quarter.

Pinterest shares soared last year as the company was a big beneficiary from the pandemic, and the business might now be suffering from a hangover as the company is up against difficult comparisons and Pinners are returning to their normal social activities. Management had guided to low-40% revenue for the third quarter, which sounds good, but is only up by low single digits sequentially. Expect user growth to be investors' main focus, as another slide in domestic users won't be received well by Mr. Market.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Facebook, Pinterest, and Snap Inc. The Motley Fool owns shares of and recommends Facebook, PayPal Holdings, Pinterest, and Twitter. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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