Social media company Pinterest (PINS -0.52%) is down by roughly 60% from its 2021 highs, and it isn't just because of the broad sell-off in growth stocks. Instead, Pinterest investors were justifiably alarmed to learn the platform's user base actually shrunk for the past two quarters in a row. In this Fool Live video clip, recorded on Jan. 10, Fool.com contributors Matt Frankel and Danny Vena discuss why Pinterest's user growth trend could reverse course in 2022, and why the user base isn't even the most important part of the business to pay attention to.
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Matt Frankel: I wouldn't be surprised to see this trend reverse in the fourth quarter and especially in the first quarter of 2022 because what's going on right now, another big COVID surge. Some schools are closing, people are being forced to stay home, a lot of offices returned to remote work, things like that. No. 1, I can see this trend reversing significantly as we head into 2022. But more importantly, we scroll down a couple of slides or one slide.
This is the average revenue Pinterest is generating per user. Unlike the user base, this is not trending in the wrong direction. If you look at the overall average revenue per user in the third quarter, Pinterest generated $1.41 in revenue per user. No. 2, user base is well over 400 million. That's 37% year-over-year growth. But look at that bottom number. The average international user generates one-tenth, less than one-tenth of what the average domestic user generates. That is growing 81% year-over-year even with the somewhat lower engagement that we saw in the second and third quarter last year.
Just to remind you, 81% growth in average revenue per user internationally. The gray bars represent the international user base. That's about 80% of the total users of Pinterest. The fastest-growing part of its revenue is what's currently very small and represents about four-fifths of its user base. If you ask me, am I concerned that had the user base declined a little bit? Sure, in the sense that it's something to keep an eye on over the next few quarters. But the fact that they are doing such a better job of monetizing the platform is really where I think the future potential lies.
If their overall user base gets cut in half, and they can continue to grow their revenue at this rate, it will be a long-term positive for Pinterest. But I don't see their user base being cut in half. But, point being, there is a lot of room to continue to grow monetization. I think there's a lot of room to continue to narrow that gap between U.S. and international user revenue, and I think that's exactly what they're going to do. They're doing fantastic with it. Guys, what do you think?
Danny Vena: This is one of the ones where I agreed with you on, Matt. This was my No. 1 conviction stocks of the ones that I did not bring to the table. I absolutely agree with your assessment of you look at how things have changed over the last two quarters, and I could name several companies that are experiencing exactly the same phenomenon right now.
One that I wrote about just recently was Roku (ROKU 0.15%). If you look at what Roku has been doing, the fact is that over the past two quarters, their active account growth has slowed significantly, has decelerated. That doesn't mean that it wasn't growing, it decelerated. But this coincided with just like you were talking about, the fact that after being on lockdown for so long, people were getting out of their houses and they were going out and living their lives. In the case of Roku putting down their remotes. But also, ARPU was growing just like Pinterest was.
I think there's a lot to be said for Pinterest and the fact that they are anti-social media stock, this is encouraging people to get out and do things. It's building them up. I'm a big fan of Pinterest and of all of these, I think you hit it dead on. I think that people need to look at the big picture and not really focus on that one metric so much on, definitely keep an eye on it because I think it's going to turn around. If we see several more quarters in a row where that decline happens, it will definitely be a red flag for me.
But right now, I think that Pinterest is a victim of the macroeconomic conditions. People got out of the house and went and did fun stuff and didn't spend as much time on their computers.
