What happened

Shares of Pinterest (PINS -0.82%) fell 50% during the first half of 2022, according to data provided by S&P Global Market Intelligence. To be fair, the S&P 500 was down over 20% during this time -- its worst start to a year since 1970. However, Pinterest has underperformed because investors haven't liked its financial results and doubt the prospects of its future direction.

So what

Pinterest generates revenue by displaying advertisements to people browsing the images on its platform. Therefore, two of the most relevant metrics to an investment thesis are user growth and monetization growth.

Pinterest reported financial results two times in the first half of 2022. It reported results for the fourth quarter of 2021 on Feb. 3, showing a 6% year-over-year decline in its global monthly active user base. And it reported results for the first quarter of 2022 on April 27, which showed a 9% drop in global monthly active users.

Having fewer active users means that Pinterest has fewer opportunities to show ads and generate revenue. This is why the market doesn't like to see the decline.

However, Pinterest's business situation is more complex than this. Monetization is measured with average revenue per user (ARPU). In Q4, global ARPU was up 23% year over year and up 28% in Q1. Therefore, even though there were fewer active people on Pinterest, revenue for the company was up 20% and 18% in Q4 and Q1, respectively.

While revenue was up, the growth rate was a far cry from the triple-digit growth Pinterest had posted in previous quarters. And this slowing growth rate was enough to contribute to the stock's 50% decline.

PINS Chart

PINS data by YCharts

Now what

Pinterest is a platform in transition. People browse images looking for inspiration for projects. But the company is hoping that its platform can become something more akin to an e-commerce platform

To that end, Pinterest has been making more posts shoppable with integrations with e-commerce companies like Shopify and WooCommerce. And the company is experimenting with a new concept called Your Shop, where Pinterest users will get a feed of personalized shopping recommendations.

On June 10, Pinterest took it a step further by acquiring a company called THE YES for an undisclosed amount. This platform is similar to Pinterest's Your Shop idea. Management closed down THE YES platform because it was only interested in its technology and talent. But it shows the direction the company is headed.

Perhaps the biggest news came on June 28 when it was announced that CEO and co-founder Ben Silberman was stepping down so that Bill Ready could become CEO. Ready was formerly in charge of commerce efforts from Alphabet's Google, which again shows where Pinterest is trying to go.

It seems the market doubts Pinterest's ability to grow its ad business and doubts its future in e-commerce. The stock consequently trades at its lowest valuation ever and could be a bargain buy if it ultimately proves the doubters wrong.