It wasn't the fiscal fourth quarter Pinterest (PINS 0.43%) shareholders were hoping for. Although earnings topped estimates, revenue fell short of expectations. Sales guidance for the quarter currently underway is also less than thrilling. The stock took a 5% tumble on Tuesday following Monday's post-close release of Q4's numbers.
Don't be too worried, though, if you own it or were thinking about buying it. There were a couple of key bright spots buried within Pinterest's quarterly earnings presentation. Namely, it's doing something other social networking platforms aren't doing right now.
A quarter to forget, thanks to soaring spending
It's an admittedly unusual social media site. Whereas Meta Platforms' Facebook and Twitter are seemingly designed to encourage online conversations that eventually devolve into bickering, Pinterest's sole shtick is organizing websites and digital images by "pinning" them onto virtual bulletin boards. Other like-minded users can follow one another to review their collections; they may well stumble onto something new they like, as Pinterest monetizes its users' bulletin board browsing by injecting the occasional advertisement into the mix.
The thing is, it works. The company did $877 million worth of ad business last quarter, up 4% year over year. It also turned $17.5 million worth of that figure into operating, non-GAAP income,
Problem? Profits were down on the order of 40% last quarter, as well as for the year. Its cost of revenue grew quite a bit, while its sales and marketing spending of $317.3 million last quarter jumped 66% from similar outlays in the same quarter a year earlier. It's a spending-growth trend seen for the better part of last year, in fact, spooking shareholders.
And yet, the spending may have all been well worth it.
Doing what other social media sites can't
Take a look. In all markets, including the all-important U.S. and Canada market, average revenue per user (or ARPU) markedly improved. It didn't grow by leaps and bounds, mind you, but that 6% year-over-year improvement in ARPU among Canadian and U.S. users is a feat that wasn't matched by Facebook last quarter, nor by Snapchat parent Snap.
Indeed, Snapchat and Facebook each saw their global and U.S./Canadian per-user revenue figure slide last quarter.
Data source: Pinterest Q4 2022 earnings presentation slides.
The point is, Pinterest is clearly making the most out of the revenue-driving initiatives put into motion even prior to the pandemic. Back in 2019, for instance, Pinterest gave prospective advertisers a means of allowing users to "shop the look" they were seeing on a particular fashion-minded board. In 2020, the company unveiled a tool allowing creators to visually tell stories with a series of images.
Then on Monday, Pinterest CEO Bill Ready highlighted the early success of short-term video viewable from the site. Pinterest's continued ARPU progress indicates the company's still fine-tuning these and other engagement-minded efforts.
The other bullish bright spot from last quarter's report is far more direct. As the company's fourth-quarter press release states, "We expect our Q1 2023 non-GAAP operating expenses to decline to low-double-digits percent quarter over quarter." That means we should be looking less at relative spending this quarter than we saw with last quarter's growing outlays.
Granted, we don't know exactly what this might mean in terms of degree or timing. During Monday's earnings call, Ready also mentioned several cost-culling measures a few times, like office closures and less spending on infrastructure, were already being taken. Given this, don't be surprised to see earnings growth outpacing sales growth this year as well as next. That's what analysts are expecting anyway.
Data source: Thomson Reuters. Chart by author. Revenue data is in millions of dollars.
You could certainly do worse than Pinterest
A bulletproof pick? No, Pinterest has some things to figure out. User growth is essentially stagnant in the U.S., with most of last quarter's user growth coming from Europe and the rest of the world, where per-user revenue is lowest. Current CFO Todd Morgenfeld is also stepping down in July, injecting a fresh unknown into the stock's overall investment proposition.
On balance, though, there's more for investors to like here than they're presently seeing. Time will cure that ailment. The trouble is, it could cure it quickly while you're on the sidelines, not paying attention. This may be a wise name to ease into the stock while it's down.
