What happened

Week to date, shares of Pinterest (PINS 0.89%) were trading down 12.4% as of 12:46 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence. Social media stocks across the board sold off earlier this week after Snap revised its outlook down over a worsening macroeconomic environment.  

Pinterest and other social media companies make their money from advertising revenue, so a "deteriorating" economic picture, as Snap described it, means less demand from brands that can't count on consumers to buy their advertised goods. Year to date, Pinterest shares are down 45%.

PINS Chart

Data by YCharts.

So what

Analysts aren't so sure that Snap's weak outlook will spill over to Pinterest and other social media stocks. For example, Pinterest has over 400 million monthly active users, and many of these users use the app to browse for inspiration and ideas about something they are shopping for. They are already on the hunt to potentially buy something, which could be valuable to advertisers in this economic environment where more consumers are tightening their wallets.

This differentiated user makeup explains why Pinterest saw strong growth in average revenue per user (ARPU) in the first quarter, rising 28% globally year over year. The strongest rates of growth were in Europe, up 40%, and Pinterest's "rest of world" segment, up 164%. While overall engagement on the platform was down, the increase in ARPU was driven by advertising demand, showing that Pinterest could fare better than its social media peers in the near term.

Two people looking at their smartphones.

Image source: Getty Images.

Now what

The biggest weakness for Pinterest is the loss in monthly active users. The user base declined 9% over the year-ago quarter. Management blamed lower search traffic driven by Alphabet's algorithm change last year for Google search and difficult comparisons to the jump in growth during the pandemic in early 2021. 

To restimulate engagement and position for long-term growth, management continues to focus on investing new video formats, improving search and recommendations, and transitioning the platform to an e-commerce channel, where users can shop products within the app.