What happened
Shares of visual search and social media site Pinterest (PINS 1.02%) were up 3.3% today as of 2:35 p.m. ET. It's a small but much needed relief rally for the internet company. The stock is down 41% over the past three-month stretch alone as the mood has soured on Pinterest's prospects for average user and engagement growth.
So what
Besides the last quarterly financial update provided in November, interest rates have been what's eating Pinterest's stock. While it's still a richly valued business even after enduring an absolute drubbing in 2021, the U.S. Federal Reserve has indicated higher interest rates are in order this year to try and tame inflation. Higher interest rates lower the present value of a stock, especially premium-priced ones like Pinterest that assume business will continue to expand at a rapid rate for many years to come.
Image source: Getty Images.
Today's jump in value is thus nothing more than a rise in beaten-down tech stocks that have been under pressure in recent months. With yields on the 10-Year Treasury having risen from 1.2% last summer to over 1.8% today, little else will move Pinterest that much until the next earnings update, which is likely to be out sometime in February (management has yet to set a date).
Now what
As for that upcoming earnings report, Pinterest has a high hurdle to clear. It's still lapping a boom in average monthly users it experienced in 2020 during the first year of the pandemic. Paired with more people spending less time at home in 2021, the company's average user growth metric (an important measure for all social media and internet businesses) has stalled out. During the last quarterly call, management said monthly average user growth was trending toward flat to up a low-single-digit percentage year over year (there were 447 million monthly average users as of Nov. 2).
That being said, Pinterest can still grow its revenue in other ways. Many of the users that are sticking around are using the site even more, which helps lift the value of advertising sold on Pinterest. If that trend continued in Q4 2021, a more meaningful rally could be in store for the stock. Shares currently trade for just under nine times trailing-12-month sales and 34 times trailing-12-month free cash flow. If the company proves its growth story isn't over, that could be a pretty good long-term deal.
