Pinterest (PINS -0.47%) has been getting whipsawed around, and not just because of extreme market volatility in recent weeks. It was an exceptionally busy summer. Co-founder and CEO Ben Silbermann stepped down, replaced by Bill Ready -- former president of Alphabet's (GOOGL 0.69%) (GOOG 0.71%) Google Commerce. Then investment management firm Elliott Management took a large stake in both Pinterest and PayPal (PYPL 1.15%). With all of that shuffling around, it's no wonder rumors have been flying that Pinterest is going to get acquired.  

Elliott is reportedly pushing for some sort of sale, and the fact PayPal was interested in buying Pinterest last year makes it seem less than coincidental that Elliott owns shares in both companies. But then there's Ready's old ties with Google, not to mention cryptic messages from Alphabet CEO Sundar Pichai (maybe) suggesting that the search giant might be interested, too.

Is a buyout the best outcome for Pinterest shareholders? Maybe. But I'd love for Pinterest to remain independent to see where it goes over the next few years.

If an acquisition happens, my preferred bidder is...

If Pinterest is going to get acquired, I'm not convinced PayPal would be the best fit. Don't get me wrong, I own some PayPal stock, and a cash-out on Pinterest at a premium to current prices wouldn't be the worst thing ever. But PayPal has steep competition and has been running into financial issues and a big slowdown in growth. Pinterest might provide a short-term bump for the digital payments giant, but I'm not sure it necessarily strengthens PayPal's core business.

Alphabet, however, would be a different story. I own Alphabet stock as well, but I think Pinterest and its visual search engine would be a much more natural fit for the Google internet empire. And since Pinterest is making a push into becoming more useful as an e-commerce platform, that could be lucrative for Google as it tries to deepen its presence in digital shopping. Plus, this would be an easy buy. Pinterst's current enterprise value is $13 billion. Even assuming a huge premium offer (say, in the range of $20 billion to $25 billion), Alphabet wouldn't be hurting for funding. It had $125 billion in cash and short-term investments on hand at the end of June.

The bigger issue for Google would probably be antitrust. Its virtual monopoly on internet search is already drawing scrutiny and calls for regulatory intervention. At any rate, pairing two internet search companies (Google plus Pinterest) makes much more sense from a business integration perspective than pairing payments with search (PayPal plus Pinterest). If a buyout is the eventuality, I vote for Alphabet.

Would a buyout really be a good thing?

Pinterest shares are down more than 70% from all-time highs reached in early 2021. A quick cash-out for a premium to current prices would be a nice consolation prize for anyone who invested at or around all-time highs. Plus, investors could always invest in the company doing the acquiring to continue getting at least some ancillary exposure to Pinterest as it tries to mount a recovery.  

However, I for one would much rather see Pinterest go it alone for at least a couple of years. Pinterest doesn't need to be in a hurry to sell. Yes, its user base has fallen from highs in 2021 (from 478 million monthly active users in the first quarter of 2021 to 433 million in Q2 2022). In spite of this, though, Pinterest's revenue is still increasing as it unlocks the value of its users through advertising and better tools for merchants to manage their audience engagement. Pinterest's revenue was up 9% year over year in the most recent quarter. If new CEO Ready can stabilize monthly average users, there's potential for this growth rate to accelerate.

But let's not sell Pinterest too short. This company can absolutely operate from a position of strength. Unlike a lot of internet company darlings from the past several years, Pinterest is highly profitable. It generated free cash flow of $685 million over the last reported 12 months, a very healthy free cash flow margin of 25%. And as of the end of June, it had cash and short-term investments on hand of $2.66 billion and no debt. Cash and equivalents thus make up a whopping 17% of Pinterest's current market capitalization.

In other words, an acquisition might provide a quick return on Pinterest stock, but it could also be significantly selling the company's long-term potential short -- especially now, in the midst of a bear market when valuations are being pushed lower on extreme fear. 

If you're a long-term investor who buys with the intent of holding for years, I believe the best outcome for Pinterest (given the information we have now) is for the social media and visual search company to remain independent.