Pinterest (PINS 4.04%) is not having a good year in 2021. It started decently, but engagement on the platform decreased more than expected when economies began reopening. As a result of declining users, the stock is down roughly 40% year to date.
Still, the company's long-run potential remains intact. Sure, it lost some users over the previous two quarters, but that's after the surge in new signups it experienced at the pandemic onset. And its under-monetization, as demonstrated by the gap between what Pinterest generates in average revenue per user (ARPU) compared to Meta Platform's Facebook (META 0.43%), highlights the massive potential for Pinterest stock.
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Pinterest makes money by showing advertisements
In its most recent quarter, ended Sept. 30, Pinterest reported a global average revenue per user of $1.47. That was up by 37% from the same quarter last year, where it earned an ARPU of $1.03. Interestingly, the ARPU varies significantly depending on where the users are geographically located. Users from the U.S. generate more ARPU than international users.
Like other social media companies, including Facebook's family of apps, Pinterest is free to join and use. The companies make money by showing advertisements to folks who sign up and start using the app or website. It's no surprise that marketers are willing to spend more to show ads to users from the U.S., where the average personal income is higher than in other parts of the world. Higher personal income means more spending power, which advertisers are looking to utilize -- getting people to buy their products or services.
Indeed, Pinterest's ARPU from the U.S. was $5.55 in the third quarter of 2021, up 44% from last year. Meanwhile, its international ARPU was $0.38 in Q3, up 81% from last year. International ARPU is growing faster than domestic, but it is more than 10 times below domestic.
Facebook is experiencing a similar trend. Its global ARPU was $10 in its most recent quarter, up from $7.89 at the same time last year. However, its ARPU from the U.S. and Canada alone was $52.34. Facebook breaks its international segment into several regions, and there was not a single region that came anywhere close to what it earns from the U.S. and Canada.
Pinterest makes far less money than Facebook from each user
The large gap between Facebook and Pinterest in global ARPU could be an opportunity for Pinterest. At $10 versus $1.47, Pinterest has a lot of room it can make up. One way management aims to increase ARPU is by boosting monetization efforts internationally.
As shown by the extremely low ARPU in its international segment highlighted earlier, the initiative is still in its early stages. Management is in the process of building out its sales force, recruiting more advertisers to use Pinterest, making its platform more shippable, and better matching ads to people's interests.
Out of Pinterest's 444 million monthly active users, 356 million are from international regions. If Pinterest can successfully increase international ARPU, it can have a meaningful impact on revenue and profits.
