Pinterest (PINS -4.92%) stock has been a disaster for any shareholders who bought it during or after the summer of 2020 and held on. For shareholders who bought during the nearly one-year stretch between its early 2019 IPO and the start of the pandemic, things look slightly better -- but not much.  

However, it appears that Pinterest's pandemic-fueled boom-to-bust cycle is just about finished. There are still challenges ahead for new CEO Bill Ready as he guides the company toward a sharper focus on e-commerce, but there are early indications Pinterest stock bottomed over the summer.

Is the coast completely clear?

One key metric has me feeling a bit more optimistic about Pinterest's prospects: monthly active users (MAUs) in the U.S. and Canada. Nearly 80% of Pinterest's active users are located outside of North America. However, monetization within the North American market provided 84% of its third-quarter revenue. Average revenue per user has been growing, keeping overall revenue on the rise, but the shrinking user base in the U.S. and Canada had been a serious drag on the business for the last year and a half.

PINS Revenue (TTM) Chart

Data by YCharts.

That's why the company's MAU count for the U.S. and Canada last quarter is such a big deal. Ready noted on the earnings call that Pinterest had notched its first sequential increase in North American MAUs since the first quarter of 2021 (the company began reporting its U.S. and Canada users as a single segment in the first quarter of 2022).


U.S. and Canada Monthly Active Users

International Monthly Active Users

Q1 2021

109 million

370 million

Q2 2021

100 million

354 million

Q3 2021

98 million

347 million

Q4 2021

95 million

337 million

Q1 2022

94 million

340 million

Q2 2022

92 million

340 million

Q3 2022

95 million

350 million

Data source: Pinterest.

The coast certainly isn't clear just yet for Pinterest. Nevertheless, since the U.S. and Canada provide the bulk of its revenues at this point, it cannot be understated just how important stabilizing the user base there was for Ready. If North American MAUs remain stable -- or even start to increase again -- Pinterest just might be a valid growth story. 

The big hurdle that lies ahead

Even if we assume the user base in Pinterest's most important region is done shrinking, questions remain. The company has accelerated its pace of spending as it doubles down on building out its visual search capabilities to make the platform more supportive to e-commerce. As Ready has emphasized in his short stint as CEO, purchasing intent is a key reason many people visit Pinterest in the first place. Oftentimes, those visits come early in their journeys toward an ultimate buy, but Pinterest is being used to get ideas for home decor, beauty products, clothes, and vacations, among other things. As such, Pinterest clearly has value for advertisers.

But making the platform more usable for marketing and ads will be key -- as will keeping users' eyeballs glued to Pinterest so the ads on the platform can ultimately deliver value to its business partners. The fact active users are starting to climb again in the U.S. and Canada is a good start, but Pinterest is pouring money into developing new ad formats, new monetization measurement tools, and new ways to engage users. As a result, its profit margins are being squeezed as free cash flow also declines.

PINS Gross Profit Margin (Quarterly) Chart

Data by YCharts.

This is no surprise. Even before Ready took the helm, co-founder and former CEO Ben Silberman had been talking about the expensive journey that lay ahead for Pinterest. But in the third-quarter earnings call, Ready again emphasized profit margin expansion should return sometime in 2023 as the company reduces its spending on non-essentials in favor of its highest-impact growth initiatives.

There are plenty of questions that still need answering, but this latest report showed the visual and social search platform's most important segment might be on the mend. If you believe its North American user base has stabilized and the company can indeed improve its profit margins starting next year, then this might be a good time to start nibbling on Pinterest's stock again.