Pinterest (PINS 4.04%) stock has its fair share of both optimists and pessimists these days.
The social media company experienced a surge of new users and rising engagement from existing users earlier in the pandemic. But now that economies are reopening and people are gradually returning to their pre-crisis behaviors, that trend is reversing. However, Pinterest's revenue has continued to grow even as engagement has decreased and its active user count has slipped, so overall, both sides have some ammunition to support their arguments.
Image source: Getty Images.
The bear case
The bear case against Pinterest centers around the fact that its monthly active user count is declining. That figure peaked at 478 million in the first quarter of 2021 and has been losing ground ever since. To be more precise, Pinterest has shed monthly active users for three consecutive quarters, ending Q4 2021 with 431 million. In other words, Pinterest has lost 47 million users in three quarters.
Pinterest is free to join and to use. It makes money by showing advertisements to those who browse the pages on its platform. Therefore, users and user engagement are crucial for its success. If people are visiting the platform less frequently or spending less time with it each time they do, that means fewer opportunities to show them ads.
Adding fuel to the bear case is the level of uncertainty. Will Pinterest keep losing users throughout 2022? Will those user losses accelerate? Will it ever return to user growth? Will creators start to abandon the platform because there are insufficient users to make their time worthwhile? These are all unanswered questions that add uncertainty to an investment in Pinterest.
The bull case
The bulls will argue that Pinterest is still delivering robust long-term growth in revenue and users. While it's true that it has shed users for three consecutive quarters, it has far more of them than it entered the pandemic with. As of Dec. 31, 2021, Pinterest boasted 431 monthly active users. That's 96 million more than it had at the end of 2019. In other words, all that has happened is that the platform has lost a portion of the users it added during the pandemic. That was to be expected. No one thought that engagement on Pinterest would remain as high as it was during the height of the pandemic, when hundreds of millions of people were spending most of their time at home.
Moreover, the company boosted its revenues from $1.1 billion in 2019 to $2.6 billion in 2021. And that didn't come just from its increase in users; it's also extracting more value from each user. In Q4 2019, Pinterest's average revenue per user was $1.22 globally; that metric in Q4 2021 was $1.93. This was in part the result of the work the company has done to optimize monetization -- specifically, rolling out better capabilities internationally.
So since the pandemic began, Pinterest has added a net of nearly 100 million users and is generating more revenue from each user. Meanwhile, its stock trades at a lower price-to-sales ratio than it did before the crisis.
Nevertheless, the bears are handily winning the argument. Pinterest stock is down by 38% so far in 2022 and down by 59% over the last six months.
