Pinterest (PINS -0.52%), which at one quarter during the pandemic grew revenue by over 100%, sees slowing growth ahead. The deceleration is to be expected. Pinterest thrived during lockdown phases of the pandemic when billions of folks were cooped up at home. That level of customer acquisition and engagement was unlikely to last long term.
As economies are reopening and people are spending less time at home, it's giving consumers fewer reasons to log onto Pinterest for inspiration. However, shareholders need not abandon the ship. Pinterest was growing revenue robustly even before the outbreak, so it would be reasonable to expect the slowdown will be short-lived.
Image source: Getty Images.
Revenue growth is decelerating
After peaking at 125% in the second quarter of 2021, Pinterest's revenue growth has slowed for three straight quarters. In the third and fourth quarters of 2021, revenue increased by 43% and 20%, respectively, year over year. In Pinterest's Q1 2022, which ended March 31, revenue increased 18%. Management expects the trend to continue and has forecasted revenue growth of 11% in Q2. The deceleration can be attributed to several factors.
PINS Revenue (Quarterly YOY Growth) data by YCharts.
It's important to note that Pinterest makes its money primarily through ad revenue. The coronavirus pandemic is causing supply chain shortages worldwide, decreasing marketing demand. Why advertise when you are organically selling out of inventory? That trend will likely persist for at least a few more quarters as supply chains get back on track.
Additionally, Pinterest has shed 55 million monthly active users (MAU) since its peak user total of 478 million in Q1 2021. Marketers pay for the opportunity to influence decisions. The fewer individuals they can reach, the less they are willing to pay. Therefore, Pinterest's loss of MAU can explain some of the revenue growth deceleration.
Similarly, marketers are willing to pay a premium to influence individuals with greater purchasing power. Another troubling trend for Pinterest is that the mix of users has shifted toward regions with lower incomes. Of the 55 million MAU it has shed, 31 million were from the U.S., Canada, and Europe, areas more highly targeted by marketers.
Finally, the Russian invasion of Ukraine is creating uncertainty for small and large businesses alike. As typically happens during uncertainty, companies reduce advertising until they get a clearer picture of the economic outlook.
Worries over slowing growth have made Pinterest stock a bargain
Nevertheless, in the two years of 2018 and 2019, before the outbreak, Pinterest boosted revenue by 60% and 51%. The coronavirus pandemic was a significant disruption to businesses worldwide. Understandably, there will be gyrations in advertiser demand as world economies calibrate into equilibrium as the pandemic evolves. The decelerating revenue growth for Pinterest during this backdrop is no need for shareholders to panic and sell the stock.
PINS data by YCharts.
On the contrary, the stock has gotten so cheap due to worries over user losses and slowing growth in the near term that it would be an excellent time to add to or start a position in Pinterest.
