Down More Than 40% in 2021, Is Pinterest Still a Good Stock to Buy?

Should investors still consider Pinterest (PINS -0.64%) despite the stock's continued decline in recent months? In this segment of Backstage Pass, recorded on Dec. 1, Fool contributors Rachel Warren and Brian Feroldi weigh in.

Rachel Warren: I'm going to take it away with the next stock, which is Pinterest. This is a stock that got a lot of love at the beginning of the pandemic [laughs] and has been beaten down quite a bit over the past year. I think there is some continued pessimism among some investors about Pinterest long-term growth opportunities. As evidenced by the stock, the stock down about 40% here today. Shares popped briefly when there were rumors that it was going to be acquired by PayPal, That acquisition has, in fact, since been tabled.

This is another example of a stay-at-home stock that saw tremendous popularity in the earlier days of the pandemic, but is now trading something close to 50% from its all-time high. I still think this is a good company with a good business and a lot of growth opportunity left. But I think it's one to definitely watch as it has struggled a bit to keep its monthly active user growth in an optimal place, since the world and society has reopened a bit.

On a positive note, in it's most recent earnings report, the company beat both on the top and bottom line, and this was in fact despite monthly user growth slowing. Its third-quarter revenue was actually up 43% year over year at $633 million. Also broken down by location, its U.S. revenue was up 33% year over year, while revenues from international users was up 96% year over year. Net income was $94 million for the three-month period. This was a slight decline, albeit a decline from $94.2 million in the year-ago period. Adjusted EBITDA was $201 million in the third quarter of 2021. I think it's important to note this was a pretty considerable jump from $93 million in the third quarter of 2020.

So monthly active users and specifically global monthly active users: This is the number that has had, I think, a lot of investors concerned and is part of why the stock has declined so much in recent months. That figure, global monthly active users grew just 1% year over year, in the most recent quarter. Monthly active users in the U.S. were actually down 10% year over year in the most recent quarter.

That was somewhat offset by 4% growth in its international monthly active users during the three-month period. I do think it is important to note that despite the fact that monthly active user growth has waned a bit, I think some of this could be attributed to above-average growth that occurred in the earlier days of the pandemic, so by comparison, this definitely has slowed.

Global average revenue per user was actually up 37% year over year. Pinterest also reported that average revenue per user in the U.S. was up 44% year over year in the most recent quarter, and 81% internationally. While monthly active user growth has slowed, Pinterest is monetizing its users very effectively, and these numbers are still continuing to be in the mid to upper  double digits. I think this is one definitely to pay attention to over the next few quarters, to see if those numbers balance out.

Brian Feroldi: Are we at peak Pinterest users?

Rachel Warren: [laughs] I hope not, I don't think so. I think there's room for more growth.

Brian Feroldi: I need more than hope, I'm a bull.

Rachel Warren: No, I know. I agree. I think that I'm encouraged by the fact that it's continuing to monetize its users so well, with such steep jumps in average revenue per user. Like I mentioned before, I think some of what we're seeing here is just a natural decline from average rates of monthly active user growth during the pandemic. I think the company has a lot of room to grow that it can tap into as the broader e-commerce space does.

This is essentially an advertising platform. The tools it provides are key tools that brand can use to market their goods and services, and the brands have access to a platform that's essentially unparalleled. I think the key here is whether or not Pinterest can effectively monetize within that space while continuing to grow its monthly users. I believe it can, I think it's going to take time, I don't think this is something that's going to just right itself in a quarter or two.

Brian Feroldi: I'm going to block that out and say everything's going to fix itself in 90 days. [laughs] That's all I wanted to hear.

Rachel Warren: Sounds good. [laughs] We'll go with that.

Brian Feroldi: If you want to be realistic, fine.

Rachel Warren: I'm trying. I try not to raise expectations too high. [laughs]