Pinterest (PINS +0.49%) stock slipped following the release of its fourth-quarter earnings report. Revenue grew just 4%, missing estimates, and its profits plunged.
Like other social media stocks, Pinterest is getting hurt by the slowdown in the advertising market, and that's expected to last at least through the current quarter. However, there's a bigger reason for investors to be concerned about the stock.
Todd Morgenfeld, the CFO and head of business operations, is leaving the company on July 1 to pursue other opportunities. Morgenfeld was instrumental in bringing the company to where it is today, guiding its IPO and serving as an architect of its business strategy. Pinterest said Morgenfeld would help ensure a smooth transition as the company searches for its next CFO.
It's unclear what business opportunities Morgenfeld is leaving to pursue. In and of itself, his departure shouldn't raise any major issues, but it's not a stand-alone occurrence. In fact, it's part of a larger pattern, and one that is increasingly looking problematic for the company.
Image source: Pinterest.
Can't pin 'em down
When Pinterest went public in 2019, it had seven named executive officers. With Morgenfeld's departure, none of them will be in day-to-day positions with the company anymore.
Co-founder and former CEO Ben Silbermann remains as executive chair but stepped down from the top post in favor of Bill Ready, a former executive with PayPal and Google who is now CEO. It wasn't clear why Silbermann left the job, but analysts seemed to think Ready's background in payments and e-commerce made him a good fit as the company takes its next step in monetizing the platform.
During Silbermann's tenure, the company faced allegations of discrimination, undermining its reputation as a friendly place to work. Former COO Francoise Brougher was also fired in 2020 and sued the company for gender discrimination.
General Counsel Christine Flores left the company last October, which Pinterest said was "to focus on her personal interests."
Co-founder and former Chief Creative & Design Officer Evan Sharp quit to go work with Jony Ive, Apple's former top designer, and former Chief Accounting Officer Lily Yang is now CFO at Strava.
Finally, former SVP of Product Lawrence Ripsher appears to no longer be with the company.
A culture clash
Employee turnover is an unavoidable part of business, but it's often a negative, and a revolving door at the executive level can signal more fundamental problems with a business. After all, if Pinterest's future is so bright, why don't its leaders want to stick around?
Except for Brougher, it's impossible to know why each one left, and it could be for perfectly good reasons. They may have found better jobs, which seems to be the case for Yang and possibly Sharp, though it's odd to see a cofounder depart for a different company.
They may have been worn out by the IPO process and serving as top executives during the early years of a public company, which were likely grueling, or there could be personal reasons for leaving the company related to health or family, for example.
However, based on the complete turnover in the C-suite, it's hard not to suspect something awry with the culture, especially given the earlier accusations of discrimination.
On the job review site Glassdoor, however, Pinterest rates rather well, with 80% of respondents recommending the company and 84% approving of Ready as a CEO. In 2022, Pinterest was also named as one of Canada's top workplaces.
Based on those numbers, you might think that the executive departures are an anomaly.
What it means for investors
While it's disappointing to see so many executives leaving the company, it's not necessarily a red flag.
I own shares of Pinterest, and the company still has a lot of potential despite the macroeconomic headwinds it's facing. Its platform is unique, and there's a natural synergy between its image-based discovery and advertising. In fact, the company has even said that many of its users like seeing ads because they come to the site with purchase intent, looking for something like clothes or home decor. That combination could also make it a powerful e-commerce platform, and the company has started moving in that direction, with shoppable pins and other features.
Ready has still been on the job for the last year, and he deserves an opportunity to show what he can do with the business in a healthier ad market.
I'm planning to stick with the stock for now, as I think there's considerable upside potential when ad demand bounces back. But if Ready leaves or there's further evidence of internal issues like discrimination, I'm ready to follow the former executive team and walk out the door.
