Shares of image-browsing platform Pinterest (PINS -0.52%) reached all-time highs over a year ago but have cratered over 70% since then. With 433 million monthly active users, many investors were once excited by its growth prospects, comparing its relatively small user base to that of Meta Platforms (META -0.52%). Disappointingly, however, Pinterest's user growth has declined for over a year.
But Pinterest may have an underappreciated card up its sleeve -- and it could fuel the company's growth like Instagram did Meta Platforms.
Pinterest has a new app
In July, Pinterest launched a new app called Shuffles. The soft launch was confirmed to TechCrunch by a Pinterest spokesperson. Right now, you can only download Shuffles onto an iOS device via an invitation. However, according to third-party analytics group data.ai, Shuffles has already enjoyed time at the top of the download charts for its Lifestyle category despite the limitations -- an impressive start.
Shuffles was released by the TwoTwenty team -- a project launched by Pinterest in November. According to its official press release, the company created TwoTwenty to rapidly test and launch new products and features.
Shuffles is used to create collages. You can easily cut things out of images on your phone, drop objects from the app into the image, and mash things together. Moreover, you can share your collages just as easily via messages or the Pinterest platform.
At the moment, Shuffles has fallen to the 87th position for downloads in the Lifestyle category. But remember, it's not being advertised and is still unavailable for everyone to download. Downloads will logically only increase with greater availability.
Those who have downloaded Shuffles appear impressed. The app has over 2,200 reviews (as of this writing) and a 4.7-star rating out of five -- a solid start for an app still being developed.
What Instagram did for Meta
Meta Platforms used to be a single-platform company: Facebook. But in 2012, it acquired the Instagram app for $1 billion. In 2018, Bloomberg estimated Instagram's value at $100 billion. And that valuation estimate may be outdated.
Consider that Meta Platforms has a market capitalization of roughly $450 billion. According to estimates from Business of Apps, an industry news site, Instagram accounted for around half of Meta's revenue in 2021. Logically, with this much of the revenue, it could be worth tens of billions more now than when Bloomberg estimated it in 2018.
Facebook acquired Instagram weeks before it went public in a $100 billion initial public offering (IPO). At $100 billion, it was fair to be a Facebook bear. After all, with just a single platform, it would be hard to create value from that lofty starting point. But by acquiring Instagram, and later WhatsApp and Oculus, Facebook evolved into a multi-platform company and has, consequently, outperformed the market.
Why shareholders should applaud Shuffles
Let's be clear: I'd be shocked if Shuffles ever achieved a $100 billion stand-alone valuation. But that's not the point I'm making. My point is that Meta Platforms achieved market-beating growth by evolving into a multi-platform company. These returns would have been unlikely if it had only ever been Facebook. Perhaps that's a key for Pinterest stock too.
Pinterest's user bases in the U.S. and Canada -- its most lucrative markets -- have steadily declined for over a year. And its overall user base peaked at 478 million in the first quarter of 2021.
PINS data by YCharts. TTM = trailing 12 months.
As the chart shows, Pinterest has maintained revenue growth because it's better at monetizing its users with ads. And it's a trend that can continue, in my opinion. But the company's ceiling is limited if all it ever has is monetization growth. It needs to either grow its user base on Pinterest -- something that's been elusive -- or follow in Meta's footsteps and become a multi-platform company.
Excluding stock-based compensation, Pinterest has spent approximately $539 million on research and development (R&D) over just the last 12 months. That's a lot of money going toward improving and growing the business. And with a market cap of just $17 billion as of this writing, successful projects that emerge from its R&D budget could indeed move the needle for Pinterest.
Perhaps Shuffles will start Pinterest down an interesting path like Instagram did for Meta. It's too early to know for sure. But for now, as a shareholder, I'll be watching and applauding Shuffles' growth, anticipating the day Pinterest's management starts to discuss it more.
