What happened
Shares of social media and visual search company Pinterest (PINS -0.31%) were up 2.1% today as of 11:55 a.m. ET. The stock was handily outperforming a 0.7% decline for the S&P 500 and 1.3% decline for the Nasdaq Composite.
So what
It's a small shred of hope for Pinterest investors. The stock is down 40% in 2022 so far, and it has crashed nearly 80% from its all-time highs in early 2021. There was no financial news from Pinterest to cause the stock's one-day outperformance, but perhaps the beaten-down company has found some sort of bottom amid the recent market turmoil.
Image source: Getty Images.
As of this writing, Pinterest stock trades for 21 times trailing 12-month free cash flow. It isn't exactly cheap considering Pinterest's monthly active users declined 9% year over year to 433 million in the first quarter of 2022. Additionally, while revenue is still on the rise as average revenue per user gets a lift from more advertiser activity on Pinterest, expenses could increase at an even faster rate this year as the company invests in new capabilities for businesses and individual users.
Now what
Some of the monthly active user losses were attributed to Russia's invasion of Ukraine, but the media search business has been reporting user engagement decreases as pandemic lockdowns ease for the last year. However, by the third quarter of this year, management believes this will no longer be a headwind.
For Q2 2022, Pinterest forecast about an 11% year-over-year increase in revenue, but about a 10% quarter-over-quarter increase in expenses. For full year 2022, expenses could jump 35% to 40%. If that transpires and revenue growth doesn't accelerate, Pinterest's profitability could take a near-term hit, and valuation would get more "expensive" as a result.
In other words, this social media stock isn't out of the woods just yet. But signs are emerging that the steep sell-off is overdone. If you believe Pinterest will remain a growth company for the next few years, now might be the time to nibble.
