Things couldn't have looked brighter for my Pinterest (PINS 1.91%) shares in October of 2021 when PayPal was reportedly considering an acquisition of the former for around $70 per share.
However, after seeing this buyout abandoned by PayPal and posting continually declining monthly active users (MAUs) over the following quarters, Pinterest has seen its stock drop continuously to new 52-week lows.
So if we are supposed to remove our weeds and water our flowers when investing, why am I still interested in buying Pinterest shares?
Let's look at three crucial points from Wednesday's earnings report that make this inspiration-focused social media whiz seem poised for a rebound.
Image source: Getty Images.
1. Mobile and Gen Z user growth
While Pinterest's total MAUs declined 9% on a year-over-year basis during its first quarter of 2022, they grew by 2 million quarter over quarter to 433 million MAUs globally. Even better, two of Pinterest's most crucial user bases -- mobile app MAUs and Gen Z MAUs -- grew by mid-single digits compared to the first quarter of 2021.
Global mobile app MAUs are essential to the company as they drive the lion's share of its impressions and revenue -- indicating that Pinterest's core user base is still thriving.
Meanwhile, seeing growth from its youngest user base in Gen Z (i.e., ages 9 to 24) is a promising sign for Pinterest's long-term health. This growth shows that despite endless competition for smartphone engagement, the company is developing a growing niche among the younger generation.
2. Increasing shopper engagement
Much like mobile and Gen Z users, Pinterest's shopping engagement grew year over year. This growth in shopping is of particular importance to investors as it bridges the gap between what users are inspired by and their ability to buy it and make it a reality.
This shopping engagement is even more impressive because Pinterest has only begun starting a beta test for its Your Shop shopping page in the first quarter. This new, customized shopping experience uses algorithms to match your inspirational tastes with products and services. As Your Shop continues to mature, and the company's machine-learning capabilities expand to thoroughly integrate its users' tastes, the potential hidden within this shopping experience could be a massive boost to its average revenue per user (ARPU).
3. Further expansion in average revenue per user
Last but not least is the all-important ARPU metric for Pinterest. Computed as revenue divided by MAUs, ARPU is a brilliantly simple metric highlighting how well a company monetizes its users -- a handy metric for social media companies.
A growing ARPU is pivotal for Pinterest's long-term success, whether from advertising revenue or shippable content. Having grown ARPU by 28% in the first quarter, the company demonstrated that its advertising looks more robust than ever despite its nascent shopping operations.
Image source: Pinterest shareholder letter, first quarter 2022.
On top of this, roughly half of Pinterest's users come from its "rest of world" classification, which has not yet seen monetization to any true extent. As Pinterest expands its offerings to this vast group of MAUs that reside outside the U.S., Canada, and Europe, it should continue to see a gradual rise in companywide ARPU. Growing by 164% in the first quarter compared to last year, the "rest of world" group offers massive potential for Pinterest's long-term growth.
Thanks to these three reasons, I can't help but add to my Pinterest holdings -- even after a 10% jump the day after its earnings report.
