Pinterest (PINS -1.31%) has been an interesting stock since its initial public offering (IPO) in 2019. While initially falling in price, it rapidly rose as users grew, and revenue skyrocketed during the pandemic when they had plenty of time to browse Pinterest for inspiration on what their bathroom remodel should look like or what meals to cook.

But once lockdowns eased and people returned to their everyday routines, Pinterest's user base fell and dragged the stock down with it.

Despite reaching highs of more than $80 per share, Pinterest now sits at its IPO price of around $25. While some investors have become frustrated with the stock (it has just about marched straight down since June 2021), it has recently bottomed out and started to rebound.

New leadership

Founder and CEO Ben Silbermann helped build Pinterest into the company it is today, but the time for new leadership has come. Silbermann isn't leaving the company (he's moving to executive chairman), but he will no longer be managing day-to-day operations.

Instead, the CEO role now falls to Bill Ready, the former president of commerce, payments, and next-billion users at Alphabet's (GOOG -4.50%) (GOOGL -4.44%) Google, who spent time at PayPal before that. With Ready's experience, it shows exactly where the board thinks the company should focus: commerce.

As a shareholder myself, I applaud both the direction and the hire. Ready's resume is impressive, and he has the credentials to lead Pinterest into its next stage.

Pinterest is perfect for commercial tie-ins. Users are going there for inspiration, and what better way to market your item than to a group of people looking to take action? The company already has tie-ins with e-commerce giant Shopify, but the company can do much more.

Ready's plan to increase Pinterest's business has three parts. First, use machine learning and artificial intelligence to provide better feed results. Second, grow its native-content ecosystem by expanding its creation tools. And third, expand its ability to share "pins" to third-party platforms and develop more-personalized notifications.

If the company can do that, it believes it can create more-engaged users, allowing it to sell higher-priced ads because of increased usage and relevancy. This should drive revenue and profits, which Pinterest didn't do too badly with in the second quarter.

A strong quarter in a weak environment

Currently, Pinterest's primary revenue stream is ad dollars. In the second quarter, many ad budgets were slashed due to uncertain economic conditions, and social media companies didn't fare well. However, compared to its peers, Pinterest did an OK job.

Company Q2 Year-Over-Year  Revenue Growth (Decline)
Pinterest 9%
Meta Platforms (Facebook/Instagram parent) (1%)
Snap (Snapchat) 13%
Twitter (1%)

Sources: Pinterest, Meta Platforms, Snap, and Twitter.

There is a caveat in this comparison: Each company has different revenue streams besides just advertising. Still, Pinterest's 9% sales growth is respectable.

One area of investor concern was Pinterest's falling user count. In the second quarter, monthly active users fell 5% year over year but remained steady with the previous quarter's 433 million users. Unfortunately, users in the U.S. and Canada region declined by 3 million, and European users fell by 2 million when compared to the first quarter.

This loss is a problem, as these two regions are much more profitable than the rest of the world based on average revenue per user (ARPU).

Region Q2 ARPU Q2 ARPU Growth YOY
U.S. & Canada $5.82 20%
Europe $0.86 20%
Rest of World $0.10 80%

Source: Pinterest. YOY = year over year.

On the bright side, ARPU is growing faster than Pinterest is losing users. As the user loss begins to stabilize, it will allow the company to grow revenue rapidly because of ARPU expansion. Also, it grew its ARPU in the second quarter while it's competitor's ARPU shrank. That shows that advertisers are willing to pay more for Pinterest's audience.

One area that concerns me is the bottom line, because the company lost $43 million in Q2, compared to net income of $69 million last year. This loss was driven by expenses growing much faster than revenue.

Expense Line Q2 YOY Growth
Cost of revenue 29%
Research and development 29%
Sales and marketing 29%
General and administrative 32%

Source: Pinterest.

Rising expenses causing Pinterest to become unprofitable worries me. But these spending decisions were made before Ready's hiring, so I'm willing to overlook this trend. However, if I see a massive ramp-up in spending with Ready at the helm, except in research and development (new products may be necessary for the company's revival), I'll have to reconsider my stance. 

For me, the stock isn't a buy yet, but it isn't a sell. I want to see what Bill Ready can do as CEO. Pinterest has great potential, and to walk away now seems like a poor investment move.