In retrospect, it's pretty clear that the 700% rally Pinterest (PINS 0.43%) shares dished out during the early days of the pandemic was simply too much, too fast. Everyone knew everyone else was spending a lot of time at home -- and online -- but the situation didn't quite merit this degree of gain for the social media platform's stock.
However, Pinterest's steep pullback from its early 2021 peak is also overdone.
Things are changing now. The stock's logged a small, choppy gain since the middle of the year, cutting its loss to only 73% from last year's high. The glimmers of hope driving shares higher, however, still aren't fully reflected in Pinterest's price. You may want to step in before the market starts connecting the dots.
Pinterest is different
Pinterest is an unusual social networking website. Whereas Twitter and Meta Platforms' Facebook are open-ended communication platforms that allow users to start and participate in conversations, Pinterest simply allows its users to "pin" noteworthy websites or digital images to virtual bulletin boards organized by topic. If you're redecorating a room, starting a hobby, or looking for cooking tips, for example, the site's 445 million regular users have already curated and categorized a bunch of information that might be relevant to you. Pinterest monetizes this traffic by inserting the occasional advertisement into the digital collage of pins users see whenever they search for a particular topic.
Admittedly, it's an unusual business model compared to more conventional web-based businesses like search or social media. But it's a brilliant model all the same.
The key is the schtick itself. As was noted, the pins are user-curated rather than promoted by advertisers. More than that, though, Pinterest users are readier to make a purchase than most users of other social media services. As CEO Bill Ready explained at Goldman Sachs' recent Communacopia & Technology conference, Pinterest is unique in that it so well melds product discovery with purchase intent; most other sites only offer one or the other.
And it shows in the numbers: Pinterest users spend an average of 40% more at the site than they do at other social networking sites, and their average transaction is 30% bigger.
Long-awaited upgrades
But if Pinterest is such a great sales platform, why is the company's average per-user revenue still lower than Facebook's or Twitter's? The answer is, for the better part of the past 12 years since its 2010 founding, the company's priority has been user growth rather than the development of the right in-house advertising technology tools.
That's changing though. Just last month the company expanded the interface currently offered to its advertisers to include information regarding conversions; advertisers can now know exactly what's prompting a consumer to click on an ad and then become a paying customer. This upgrade follows July's rollout of a new tool making the site's user-curated content more shoppable by better-integrating merchants' digital catalogs with the site's pins.
Look for more of these sorts of advancements going forward. CEO Bill Ready? Prior to taking the helm in June, he served as president of Google's commerce payments arms. He's also the former chief operating officer of PayPal Holdings. It's not a stretch to suggest he knows a thing or two about e-commerce, and he brings something to the table that Pinterest had otherwise been lacking.
With all of that being said, it would be a mistake to not point out another X factor working in Pinterest's favor. That's the unique nature of the platform itself.
Pinterest's unusually positive experience
There's a reason other social networking sites struggle with user engagement and user growth. That is, by and large these platforms are increasingly toxic, leading to a relatively bad experience for users.
That's not the case with Pinterest.
See, the platform doesn't lend itself to interactions that eventually devolve into bickering. The Pinterest community, in fact, is topics-oriented largely for the purpose of escaping the types of ugly discussions now so frequently encountered on Twitter and Facebook.
The company's "Don't Don't Yourself" campaign launched in September even highlights this difference. Pinterest Chief Marketing Officer Andréa Mallard explained in a company statement that the messaging of this campaign is meant to illustrate how "Pinterest is a different side of the Internet, where you can focus more on doing and less on viewing, where you can find what you love and forget about likes and where you can plan your life and try something new, free of judgment."
Investors and advertisers both showing interest
Those investors keeping close tabs on Pinterest likely already know the company's third-quarter report was less than thrilling, as was its fourth-quarter guidance. While it managed to beat its top- and bottom-line expectations, its sales growth of 8% is the weakest it's been in a while, thanks to economic headwinds. Revenue growth for the fourth quarter now underway is apt to be in the mid-single digits. Shares jumped following the release of these tepid numbers anyway.
Given the bigger-picture backdrop, it's not difficult to see why investors are seeing Pinterest's proverbial glass as half-full rather than half-empty. Despite the company finishing out 2022 on a low note, analysts collectively foresee reaccelerating revenue growth on the back of ongoing improvements of the company's advertising management technologies.
Data source: Thomson Reuters. Chart by author.
So far the encouraging outlook hasn't helped the stock much. Advertisers are starting to figure it out though, particularly in light of last quarter's rekindled user growth. Investors aren't far behind. Indeed, the stock's slow advance since May suggests at least some investors are starting to see it, too. You may want to step in before the small crowd of bulls turns into a full-blown stampede.
