Pinterest (PINS 1.02%) thrived at the pandemic's onset. In two quarters, the company added 75 million monthly active users (MAUs). The image-based social media app saw an influx of folks looking for inspiration on activities they could do while at home.
Unfortunately for shareholders, the trend reversed in the opposite direction when economies started reopening in 2021. Pinterest experienced a steady outflow of users for three straight quarters. The movement was a significant risk for investors who were uncertain about how long and deep the decline would be.
Thankfully, when Pinterest updated investors on April 27, it noted an end to the user losses by adding 2 million MAUs in Q1 2022.
Image source: Getty Images.
Pinterest ends its streak of user losses
Overall, Pinterest boasts 433 million MAUs. Even though that increased 2 million from the previous quarter, it is still down 55 million from its peak of 478 million in Q1 2021. Pinterest's app is free to join and use. The company makes money by showing advertisements to users. For that reason, MAU totals are critical to its success.
Investors following Pinterest and observing MAU totals fall for three straight quarters worried that the decreases would persist. Before the pandemic's onset, Pinterest claimed 367 million MAUs, and there was a concern that Pinterest would return closer to that figure as economic reopening continued. The gain in the first quarter, which ended March 31, put some of those fears to rest. Although Pinterest is not out of the woods just yet, the reversal was a step in the right direction.
One sign that Pinterest is not free of its troubles is the user losses in its most lucrative U.S. and Canada region. Pinterest's MAUs continued trending downward for the fourth straight quarter in that segment. It has lost 15 million MAUs in the previous four quarters, and at 94 million, Pinterest has fewer MAUs from the U.S. and Canada than before the outbreak, when it had 99 million in Q1 2020.
The average revenue per user (ARPU) is significantly higher in the U.S. and Canada than Pinterest reports in the other two geographic segments. More specifically, ARPU in the U.S. and Canada was $4.98 in Q1, compared to $0.72 in Europe and $0.08 in the rest of the world. Marketers are willing to pay premium prices to influence individuals with greater purchasing power.
Folks from the U.S. and Canada have higher per-capita income than most other parts of the world. For this reason, markets pay more for the chance to influence their purchasing decisions. Therefore, Pinterest's continued user losses in this segment are troubling investors.
PINS Revenue (Quarterly YoY Growth) data by YCharts
Nevertheless, Pinterest has sustained healthy revenue growth despite slowing user trends. If it can stem user losses and persist in adding more, revenue growth will not be in jeopardy.
Should investors should buy Pinterest stock now?
PINS Price to Free Cash Flow data by YCharts
The risks added from decreasing MAUs have facilitated a sell-off in Pinterest's stock, among other factors. It's now trading near its lowest valuation in years. Interested investors can start adding Pinterest to their portfolios cautiously -- getting more optimistic with each quarter that Pinterest reports user growth.
