Image-based social media platform Pinterest (PINS -2.02%) benefited from massive gains during the pandemic. Since its customers had more spare time, they engaged with the platform more, sending Pinterest stock surging.

However, along with the end of pandemic-related lockdowns came a decline in the Pinterest user base. Consequently, the stock price has fallen back to pre-pandemic levels. With the stock trading at its lowest level since mid-2020, investors have to decide whether to avoid the social media stock or treat its much lower price as a buying opportunity.

A person sitting on a couch holds up a tablet computer and looks at a the screen with images from the Pinterest website on it

Image source: Pinterest.

The problem with Pinterest

At first glance, Pinterest looks like a marketer's dream. Pinterest users, called Pinners, "pin" their likes and interests on personal boards, telling marketers what they like individually. This could give Pinterest some advantage over Meta Platforms, which forces advertisers to rely more heavily on demographics and psychographics, which can often lead to wrong assumptions about the users to target with their ads.

But what's not dreamy to marketers, or investors for that matter, is the ongoing decline in monthly active users (MAUs). After years of steady growth and a peak of 478 million in the first quarter of 2021, MAUs had dropped to 431 million by Q4.

Pinterest MAU growth over the last 24 quarters, by region.

Image source: Pinterest.

Pinterest blamed the end of lockdowns for the lower numbers. However, social media platforms such as Snap experienced increased user levels over the same period, which suggests there may be other possible problems for the site.

The company has tried new strategies to drive engagement. Creators can now add short videos, and Pinners may soon be able to make purchases without leaving the Pinterest site. The latest earnings report will be released on April 27, and the updated numbers should give investors an indication of whether engagement has finally begun to turn around.

The case for ignoring falling MAUs

However, amid the focus on MAUs, investors may have ignored a more essential and positive metric -- revenue. Despite fewer people on its platform, 2021 revenue came in at almost $2.6 billion, a 52% increase from year-ago levels. Moreover, Pinterest reported a profit of $316 million for the year, a considerable improvement over the $128 million loss in 2020.

The revenue increase occurred because Pinterest's smaller customer base continues to spend more money. In 2021, global average revenue per user (ARPU) came in at $5.79, 36% higher than last year. In the U.S., ARPU grew 43% to $21.98, and the $1.59 in international ARPU spiked by 80%.

Nonetheless, the company's MAU struggles show up in other financial metrics. Revenue rose by only 13% in Q4, and Q4 earnings fell due to higher research and development expenses and increased sales and marketing expenses.

Nonetheless, Pinterest forecasts revenue growth in the "high teens" in Q1, pointing to a recovery in revenue growth. That slowing revenue growth probably contributed to Pinterest's stock price falling by more than 70% from its high.

Still, this drop has taken the price-to-sales ratio to less than 6, returning to the record lows of early 2020. That also makes it significantly cheaper than Snap, which has a P/S ratio of about 12. Such levels could point to a buying opportunity if sentiments turn positive for the stock.

Should investors consider Pinterest?

Many investors may wait until the April 27 report before opening any Pinterest positions. However, they may want to begin buying. Despite somewhat lower engagement, users continue to spend more on the platform, and the company has made efforts to increase engagement. Moreover, the P/S ratio has again begun to flirt with record lows. Such user and stock behavior could indicate that the declines could end sooner rather than later.