Is Declining User Growth a Red Flag for Pinterest?

Pinterest (PINS -0.39%) shares gained following the social media company's third-quarter earnings report, but the stock is down sharply from its peak in February. Declining user growth is a big reason why.

In this episode of "Beat and Raise" recorded on Nov. 4, Fool contributors Connor Allen and Jason Hall discuss the recent report and what it means for the company going forward. 

Connor Allen: Pinterest is a company that a lot of Fools follow, a lot Fool subscribers, a lot of Fool, actual Fools that are working here. A lot of people love this company and they just released their earnings here after the bell. I went ahead and looked it over. For those that don't know, Pinterest is a social media company. Majority of their revenue comes from ads. They are basically your one-stop-shop for people looking to see a vision like if you're building a house and looking for what to do with the room or something like that. There's a lot of creative users that are using the apps and a lot of creative, I guess you could say creators on the Pinterest as well.

Personally, I think they had an overall pretty good quarter. It looks like the market thinks so as well as their stock is up around 6 percent since they reported after hours. They're missing a few pieces that I would like to see which we're going to dive into. But overall, it seems like this is pretty good. Let's get into it. As far as their EPS estimates, they were on average 0.23 and they beat that and they got 0.28. That was good to see. The revenue estimates were around $630 million and they beat that with revenue of $633 million.

Their monthly active users, which is something that I focus a lot on when I'm looking at Pinterest. Something that I really do believe is that MAU is what drives this company's growth in the long run. Their global growth was one percent and their US growth or not so growing growth is negative 10 percent. They actually lost a bunch of monthly active users in the US, which is really not something I would like to see. Because we're going to get into that a little bit here in a second. But the revenue outlook for the company, he didn't give any specific any specific number they just said that they were expecting high-teen growth for Q4. Some of the highlights, they're continuing to focus on R&D and focus on Pinners. Their ARPU, which is average revenue per user for those who don't know, in US grew 44 percent year-over-year. Their ARPU globally grew 37 percent. But the reason why that negative 10 percent MAU growth in the US concerns me is because when you actually look at the average revenue per user on a global versus US level, US ARPU is $5.55, which basically means that the revenue from one users is $5.55. When you look at globally, it's a $1.41. When you're seeing global growth go up, but US growth decline. Basically you're losing higher revenue users when you're losing people in the US.

Jason Hall: Right. It takes a lot more international growth to offset that loss of the user base. Yeah.

Allen: Yes. It's not great to see and my concerns go along with that. That we want to see increasing ARPU and on global MAUs as a whole and especially in the US as well. That's Pinterest.

Hall: Yeah. Thanks for that update. I think it's really important to monitor that user base. This has been going on for a few quarters now, we didn't expect to see it recover quickly. It's about where the market expected. I think the stock price shows that. The growth of that monetization is big. That's really, really the key. Assist that they can get to a steady-state in with their North American user base and continue to grow internationally. I think that's the optimum thing going forward, right Connor?

Allen: I agree. I agree.