Pinterest (PINS 4.15%) surprised investors on June 28 by announcing that Ben Silverman, who co-founded the social media company, would resign from the CEO position and become its executive chairman instead. Silverman will be succeeded by Bill Ready, who previously led Alphabet's (GOOG 1.17%) (GOOGL 1.12%) commerce and payment efforts at Google.

Pinterest's shares initially soared 10% during after-hours trading on June 28 following the announcement, but they subsequently gave up most of those gains and advanced just 1% on June 29. The stock still remains down about 75% over the past 12 months, and it hovers just above its IPO price of $19.

A person uses Pinterest's iPad app.

Image source: Pinterest.

The bulls might argue that Pinterest looks undervalued at 23 times forward earnings and four times this year's sales, but can Ready actually generate fresh growth for the struggling social media company in this challenging market? 

What happened to Pinterest?

Pinterest carved out a niche in the crowded social media market with its virtual pinboards, which enabled people to pin and share their hobbies, interests, and ideas through online photos and videos. That visual approach made it a natural fit for online merchants and advertisers. As an interest-driven platform, Pinterest was also insulated from the fake news and hate speech scandals that plagued Meta Platforms' (META -1.05%) Facebook and Twitter.

Pinterest was already growing like a weed prior to the pandemic. Between the fourth quarter of 2016 and 2019, its monthly active users (MAUs) more than doubled from 160 million to 335 million. Its revenue rose from $299 million in 2016 to $1.14 billion in 2019, representing a compound annual growth rate (CAGR) of 56%. Meta grew its annual revenue at a CAGR of 37% during that same period.

When the pandemic started, Pinterest's growth accelerated significantly as more people stayed at home and used its pinboards to search for online shopping ideas, recipes, DIY projects, and other at-home activities. As a result, its MAUs soared 37% to 459 million in 2020, its revenue increased 48% to $1.69 billion, and it turned profitable on a generally accepted accounting principles (GAAP) basis in the fourth quarter of the year.

Pinterest's MAUs rose again to 478 million in Q1 of 2021, but that would actually represent its all-time peak. By the first quarter of 2022, its MAUs had tumbled to 433 million as people spent less time on the platform in a post-lockdown market. Its revenue still rose 52% to $2.58 billion in 2021, mainly driven by its growth in the first half of the year, and it generated a full-year net profit of $316 million. But for 2022, analysts expect its revenue to increase just 17% as its adjusted earnings per share (EPS) slides 17%.

Can Bill Ready stabilize Pinterest's business?

Pinterest's decision to hire Bill Ready as its new CEO indicates it's serious about evolving into a "social commerce" platform that blurs the lines between a social network and an e-commerce marketplace.

Under Silverman, Pinterest already took steps in that direction by integrating Shopify's payment services into its shoppable pins, encouraging big retailers like Ikea to upload their catalogs, and opening up its platform for integrations with Woocommerce, Block's Square Online Store, and other third-party services.

However, Pinterest's social media peers have also been expanding into the same market. Meta enabled Instagram's users to create shoppable posts, Snap's Snapchat launched shoppable ads, ByteDance's TikTok rolled out shoppable content, and Twitter started testing out shoppable profiles over the past year. The bears will argue that Pinterest didn't strike while the iron was hot last year -- when it reportedly mulled a sale to PayPal instead -- and it could lose ground to those hungry social commerce rivals this year.

Pinterest is addressing those concerns by hiring Ready, but Google's payment and e-commerce businesses didn't exactly take off under his two-and-a-half-year tenure as its president of commerce, payments, and "next billion users." Google still remains far behind Amazon in online product searches, and Google Pay continues to face stiff competition in the digital payments market. Prior to joining Google, Ready was the chief operating officer at PayPal, which struggled with a disappointing slowdown after his departure in late 2019.

Pinterest still isn't worth buying

Ready has plenty of experience with e-commerce and payment platforms, but investors need to see if he can stabilize Pinterest's MAU growth first before expanding its social shopping capabilities. If Pinterest continues to bleed MAUs, merchants will likely gravitate toward growing platforms like Instagram and Snapchat, which are also more popular with Gen Z users.

Therefore, I don't think investors should simply buy Pinterest's stock now and blindly give Ready the benefit of the doubt. He might eventually steer Pinterest in the right direction, but turning around this struggling social media company could require a lot more than an expansion of its social commerce features.