Social media stocks have been decimated this year, with Snap down 80% and over $600 billion of Meta's market cap wiped out.

Considering the economic climate, this shouldn't be too surprising. Social media companies generate most of their revenue from selling ad space, and investors are worried that a potential recession could result in reduced ad spend over the next few years.

Only time will tell if this is true, but there's one social media company that is positioned to not just weather a potential recession, but possibly come out much stronger.

People standing in a line using electronic devices.

Image source: Getty Images.

The thesis for Pinterest

While the image sharing platform, Pinterest (PINS 0.43%) has at times traded in tandem with other social media companies, it offers a very different experience from its so-called competitors.

"Pinners," as its users are called, flock to the platform for inspiration, whether it be interior design, fashion, or even Christmas gifts. This makes advertising on the platform much more effective, as promoted content is complementary to the experience rather than a distraction, such as on Meta's Instagram or Facebook.

In my opinion, Pinterest is closer to a search engine than a social media company. And search is an inherently more profitable industry, as seen in Alphabet's third-quarter operating margins of 32% versus Meta's 20%.

This e-commerce-centric experience is one of the many reasons Pinterest has outperformed other social platforms and is likely to continue to do so in the future.

PINS Chart

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The metrics that matter

When considering an investment, you should determine the important metrics to the underlying business. For Pinterest, that's monthly average users (MAUs) and annual revenue per user (ARPU).

MAUs have been a point of criticism for Pinterest in the past year. After peaking in 2021, monthly users began to decline, and in turn the market sold off the stock.

But as of the company's most recent quarterly report, MAUs are once again on the rise, which could be evidence that the decline was simply a short-term by-product of the pandemic pull forward. Investors and sideline spectators alike should watch this metric closely in the coming quarters. But for now, it appears Pinterest is once again in growth mode.

The other highly important metric for Pinterest is its annual revenue per user (ARPU), which measures the revenue it produces from each Pinner. The company generates an impressive ARPU of $5.84 domestically and a global ARPU of $1.54.

But what has me most interested is Pinterest's ARPU growth, which was 15% year over year. For context, Meta's ARPU fell by 6%, according to its third-quarter report.

In a time when companies are cutting their ad spend, this ARPU growth tells us there's something unique about Pinterest that keeps advertisers spending on the platform.

Person interacting on a social media platform.

Image source: Getty Images.

Pinterest's new, search-centric CEO

Earlier this year, Pinterest underwent a transition in the corner office. While the departure of a founding CEO in a rising growth company isn't usually a good thing, in Pinterest's case, it seems to be a highly logical move.

Former CEO and co-founder Ben Silbermann transitioned to executive chairman and handed the keys over to Bill Ready, who was previously the president of Commerce, Payments & Next Billion Users at none other than Alphabet's Google, the largest search engine in the world.

I believe this points to a leadership team that understands Pinterest's potential to operate more like a search engine and less like a social platform.

Silbermann, who remains highly involved with Pinterest's operations, shared his thoughts on the transition during the company's second-quarter earnings call:

In our next chapter, we are focused on helping Pinners buy, try, and act on all the great ideas they see. Bill is a great leader for this transition. He is a builder who deeply understands commerce and payments. And he shares our passion for creating a positive corner of the Internet.

Pinterest is an advertiser's dream

Pinterest will never have the user base of social media giants like Meta, but that's not the point. The company has outperformed both Meta and Snap by a wide margin this year because e-commerce is ingrained into the experience of pinning.

People are using the platform specifically for inspiration to make a purchase, which makes advertising highly effective. This is easily seen in the company's rising ARPU, as opposed to declines among its peers.

And now that the monthly users are once again on the rise, Pinterest looks like an excellent risk-adjusted investment.