Social media stocks got shelled this earnings season as growth rates slowed across the board, but there was one exception to the rule.

While Meta Platforms and Snap fell sharply on their respective earnings reports, Pinterest (PINS 0.68%) jumped almost 14% last Friday following its third-quarter announcement. The company posted strong revenue growth, showed off a return to user growth, and gave investors other reasons to be excited about its future.

Let's take a look at why Pinterest is a buy after the latest quarter.

A person looking at Pinterest on a tablet.

Image source: Pinterest.

The growth story is coming back

Like other pandemic winners, Pinterest stock has fallen sharply over the past year. Revenue growth decelerated sharply, and the company was losing users at one point as pandemic-era visitors moved on from the platform once the economy reopened.

Pinterest's 8% revenue growth in the third quarter isn't going to wow any growth stock investors, but that is a solid result at a time when macroeconomic headwinds are clearly weighing on the digital advertising industry (as are currency headwinds). On a constant-currency basis, revenue was up 10% year over year.

More important was that after several quarters of monthly active user (MAU) declines, the user base is expanding again. MAUs were flat year over year at 445 million, but they increased 3% from the previous quarter with solid growth in every region. The narrative of its user base having peaked no longer applies, and MAU growth should accelerate in the colder months of the year. On the earnings call, management also noted the company will soon lap a Google search algorithm update from Nov. 2021 that impacted its ability to increase MAUs, setting the stage for continued gains.

Not only is the company back to adding new users, but it also continues to do a better job of monetizing them. Average revenue per user (ARPU) rose in every region except Europe, where it fell 3%. Globally, ARPU was up 11% year over year to $1.54, and in North America, which brings in the large majority of revenue, it increased 15% to $6.13.  

Finally, profitability is down substantially as the company has continued to invest in new products and advertising tools even as growth slowed, but Pinterest still recorded an 11% margin for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the third quarter amid a challenging macro environment. On a free-cash-flow (FCF) basis, the company is also solidly profitable with FCF of $383 million through the first three quarters of the year, equivalent to a 20% FCF margin.

Profitability on a generally accepted accounting principles (GAAP) basis should return as the company said it was committed to meaningful margin expansion in 2023 and plans to finish an investment cycle in the fourth quarter. Management is also confident Pinterest will be more resilient than its digital advertising peers in the holiday quarter. 

Why it's a buy

Fundamentally, Pinterest's business is stronger than the recent results indicate. Its platform is unique in that users are especially open to seeing ads on Pinterest as part of their discovery and shopping process. The company can also offer advertisers a full-funnel experience where they can create brand awareness, build demand, and sell a product all in one place.

That's a sticky ecosystem for monetization, and the return of user growth shows the platform remains attractive.

Pinterest stock is down nearly 75% from its all-time high, and it now trades at a price-to-earnings ratio of less than 40 based on this year's adjusted earnings per share estimate. The company's profits will almost certainly increase as ARPU improves, user growth returns, and macro headwinds eventually fade.

If the social media company can deliver accelerating revenue growth and rising profitability, the stock could soar from here.