Pinterest (PINS -0.62%) has gotten crushed over the past year, falling more than 70% from its all-time high set in July 2021. The stock surged when COVID-19 lockdowns forced millions of people to stay indoors and move online for both work and entertainment. As lockdowns subsided, Pinterest also saw a decline in monthly active users (MAUs). 

However, the deep sell-off over the past year is likely overdone. Many long-term investors see the company's success coming from increased monetization of its large user base, rather than from user growth itself. The company has done great on this front over the past year, and that progress continued in its first quarter.

Pinterest showed its monetization strategy is working, despite tough times. Combined with its cheap price, you might want to add shares of Pinterest to your portfolio. 

Group of friends laughing while on their phones.

Image source: Getty Images.

1. User trends are turning around

Pinterest's user count has been declining steadily for the past year, but this might not be the most accurate measure of business performance. The company has 433 million MAUs today, down from a peak of 478 million. But it would be unrealistic to assume Pinterest could sustain its rapid MAU growth long term given how big the company is already. Other social media companies have also seen user growth slow. Meta Platforms, for example, saw its monthly active people count increase just 6% year over year in the first quarter.

Signs also hint that Pinterest's MAU decline could be over. The company reported a quarter-on-quarter gain of two million users in its latest report.

Despite ongoing competition from other social media platforms, Pinterest has typically managed to differentiate itself. And with new features, it is creating a more valuable experience for users too.

2. The company is monetizing better

Specifically, the company has made it easier to turn users' inspiration into a reality. It is testing features like Your Shop, which makes it easy for shoppers to browse customized search results to find unique products. The company has also partnered with WooCommerce, which allows businesses to turn products into shoppable Pins in just a few clicks. This makes Pinterest a key destination for people to find and buy products with ease.

These new strategies are beginning to pay off. Because of the increased user engagement, advertisers have found Pinterest is a prime place to advertise, and its average revenue per user (ARPU) has shot higher. In the first quarter, Pinterest's global ARPU jumped 28% year over year. This gain was led by users outside of the U.S., Canada, and Europe as ARPU for the rest of world cohort increased 164% year over year.

Compared to other social media platforms like Meta, Pinterest has just scratched the surface of its potential. In the U.S. and Canada, for example, Pinterest's first-quarter ARPU was just $4.98. Meta's ARPU in the region, however, was nearly 10 times that amount during the same period. As the company improves its monetization, its top line should soar. 

3. Pinterest remains financially stable

That effort has been fruitful for Pinterest so far. The company's net loss shrank from $21.7 million in the year-ago period to just $5.3 million in the first quarter. Additionally, free cash flow remained strong at $206 million, or 36% of revenue.

The company is also trading at a low price, despite its potential. Valued at just 5.8 times sales and 22.6 times free cash flow, Pinterest trades at lower multiples than social media peers like Twitter and Snap.

Pinterest is not a guaranteed success story, but the potential reward of investing in the company as it further monetizes its user base, makes strides toward becoming profitable, and creates a valuable platform for both consumers and advertisers cannot be ignored. While shareholders will need to monitor the company's progress across these initiatives, Pinterest looks like a great buy today.