Amid a falling market, many companies that investors thought of as "hyper-growth stocks" have lost most of their value. Two of these, Pinterest (PINS 4.04%) and Roku (ROKU -10.29%), have fallen more than 75% from highs hit in 2021.
Nonetheless, the latest earnings reports show signs of hypergrowth in their financials. Once market sentiment turns positive, the considerable increases could turn into gains for these growth tech stocks.
Image source: Getty Images.
1. Pinterest
Once a highflier during the pandemic, Pinterest's stock price has steadily dropped in value over the last 15 months as users returned to more offline activities. This trend translated into declines in monthly active user (MAUs) counts. But after falling for three straight quarters, Pinterest's first-quarter results showed MAUs at 433 million. While that's still a year-over-year decline, it rose sequentially from 431 million in the fourth quarter.
However, this lower usage did not wipe out Pinterest's advantage with advertisers. Users turn to Pinterest for ideas, giving it an edge over other sites that have to rely more heavily on generalized demographic and psychographic profiles not as tailored to individuals.
Still, like other companies reliant on online activity, Pinterest has suffered a revenue growth slowdown. Revenue increases did not match the 52% growth in 2021. Yet in Q1 the company increased revenue by 18% year over year to $575 million.
Pinterest accomplished this even with sluggish MAU numbers as it derived more revenue from its customer base. Average revenue per user (ARPU) globally came to $1.33, 28% more than last year. Also, the company cut its losses to $5 million versus $22 million for the year-ago quarter. Slower growth in cost and expenses offset higher income tax expenses and lower interest income.
Admittedly, users may have to exercise patience in waiting for growth to return. For Q2, the company projects 11% revenue growth. It also expects operating expenses to grow by 35% to 40% as it makes content investments in its ecosystem.
Still, amid sluggish forecasts, the stock has become a bargain. Its price-to-sales (P/S) ratio has fallen to 5.3, near its lowest level ever. That makes it cheaper than Snap at around 8.7 times sales and just slightly more expensive than Meta Platforms, which maintains a P/S ratio of 4.6. Such low multiples could point to an opportunity for Pinterest as MAU levels continue to recover.
2. Roku
Roku has positioned itself to grow simply because it has made itself the future of television. Consumers continue to turn from broadcast and cable television to streaming platforms. Roku has placed itself at the center of that trend through its ecosystem. It draws viewers through low-cost televisions and streaming players. Additionally, its largest growth driver is the advertising platform by which companies can reach this audience.
According to eMarketer, just 18% of ad budgets go to streaming. However, as the transition to streaming continues, Roku will likely benefit as that percentage moves closer to 100%.
The investment thesis of Roku still appears intact. Incremental active accounts rose to just over 61 million, more than 1 million higher than the previous quarter.
Also, total net revenue came in at $734 million, a 28% increase year over year. The platform-driven portion was $647 million, rising 39% over the same period. It also compensated for a 12% decline in player revenue driven by supply chain issues. During this time, TV prices rose while player prices fell on average by 9%.
However, both the cost of revenue and operating expenses increased faster than revenue. This led to a net loss of $26 million, well below the $76 million earned in the year-ago quarter.
Amid that drop, the outlook points to slower revenue growth, with the company forecasting net revenue of $805 million, a 25% increase. That represents a significant slowdown from the second quarter of 2021 when net revenue surged 81% compared with Q2 2020.
Nonetheless, the falling stock price has taken its P/S ratio down to 4.5. In time, investors could begin to see that valuation as inexpensive as the transition to streaming continues to drive revenue and user counts higher.
