One characteristic that differentiates smart investors is recognizing the key factors that move a stock price. That allows their time spent in due diligence a greater return on investment. Otherwise, you could spend weeks researching every minute detail about the company without getting an equal or more significant benefit for the work completed.
Worse yet, you could dig into factors that have little sway in moving the company's stock but place greater importance on it than needs be. In Pinterest's (PINS +1.32%) case, the three factors that savvy investors know are a streak of declining monthly active users, a developing international segment, and a massive market opportunity. Let's look at each in more detail below.
Image source: Getty Images.
1. Streak of monthly active user losses
Pinterest thrived at the pandemic onset. Hundreds of millions, if not billions, of folks were spending a lot more time at home than usual. The image-based social media site has excellent content inspiring at-home activities like cooking, organizing, and gardening.
As a result, monthly active users surged to 478 million. Unfortunately for shareholders, economic reopening has been a headwind. People are spending less at home and, as a result, needing less inspiration for at-home activities. Pinterest has shed monthly active users for three straight quarters. In aggregate, Pinterest has lost 55 million users since reopening gained momentum.
The fall is creating a risk for investors who are uncertain how many more users will disengage and how many more quarters the decreases will last.
2. International monetization
Interestingly, Pinterest's 431 million monthly active users are skewed internationally. Of the total, only 86 million are from the U.S. Despite the smaller sum, revenue from the U.S. region accounted for 76.5% in its most recent quarter ended Dec. 31.
The international shortfall is an aim for improvement. Pinterest is increasing its international sales coverage, expanding its advertising base, and honing its strategy for delivering targeted ads to international users. The focus is bearing fruit; the average revenue per international user increased by 62%, compared to 25% for the U.S. in the fourth quarter of 2021.
The boom could help bring the international average revenue per user ($0.57) more closely in line with that of the U.S. ($7.43). The figures are for its fourth quarter ended Dec. 31.
NYSE: PINS
Key Data Points
3. Pinterest has a massive total addressable market
Signing up for and using Pinterest is free. The company makes money by showing advertisements to folks browsing its app and website. Notably, the advertising industry is massive. Marketers spent $763 billion globally in 2021. That was up by 22.5% from the year prior. Another benefit to Pinterest is that an increasing share of that spending is going to digital channels. From 2019 to 2021, the percentage of digital advertising increased from 52.1% to 64.4.%.
The trend is likely to be a tailwind for Pinterest in the near and medium term. Pinterest generated $2.6 billion in revenue in 2021, so it is still a tiny part of the overall ad industry. The extended runway for growth is a positive working in its favor.
The stock has reacted to the first point mentioned above more than anything else. Pinterest is down 71.6% off its high and is now trading at a relatively cheap price to free cash flow of 23. It's an excellent time to consider adding Pinterest stock to your portfolios.
