The social media company Pinterest (PINS -0.52%) experienced a surge in engagement at the pandemic's onset. Folks were spending more time at home and looking for inspiration for domestic activities like cooking, decorating, gardening, and so on.
The trend is reversing now that economies are reopening, and Pinterest is feeling the adverse effects. Fewer people are logging onto its app, and it's shedding millions of monthly active users (MAUs). As a result, the stock has fallen on hard times and is down significantly for the year. With that backdrop, let's dig deeper to see if Pinterest is a buy right now.
Image source: Getty Images.
MAU losses are stabilizing at Pinterest
Like many other social media companies, Pinterest is free to users. It makes money by showing advertisements to people who are browsing on its app or website. For that reason, it benefits as it attracts more people and they spend more time on its platform. Advertisers are willing to pay more to reach 2 million people than they would to reach 1 million.
As its third quarter ended Sept. 30, Pinterest had 444 million MAUs. That was 10 million fewer than it had in the previous quarter and 34 million fewer than two quarters ago. The steep decline has investors worried. Management attributed the losses to the economic reopening. Folks are spending more time on activities outside of their homes, which leaves less time to engage with the Pinterest app.
Fortunately for shareholders, management noted that between the end of the third quarter and Nov. 2, MAU losses had stabilized. While it's still early in the fourth quarter, the turnaround could go a long way to assuage investor concern over continuing losses.
On another positive note, Pinterest is growing its average revenue per user (ARPU). That's because management has built better tools for advertisers to add efficiency. This feature lets marketers optimize for shopping, conversion, and awareness. Global ARPU increased by 37% from last year to $1.41 in the third quarter.
Domestic ARPU is far higher than the international figure: $5.55 versus $0.38. Pinterest is still in the early stages of monetizing international users, but the segment is expanding. The vast majority of its monthly active users are outside the U.S. -- 356 million -- so increasing international ARPU is a significant opportunity for revenue growth.
Is Pinterest stock expensive?
The MAU losses have taken center stage in investors' minds, and Pinterest stock is down 43% year to date. However, that sell-off now has the stock trading relatively inexpensively. Its current price-to-earnings ratio of 74 is the lowest it has sold for in Pinterest's brief history as a public company.
While the company is still not consistently profitable, it should only be a matter of time. Pinterest has been increasing earnings per share (EPS) rapidly -- up 159% and 189% year over year in the latest two quarters. In all, the company has achieved six straight quarters of year-over-year EPS increases. So despite the headwinds caused by the economic reopening, Pinterest looks like a buy right now.
