Pinterest (PINS 0.37%) disappointed investors with its cautious first-quarter outlook, but one metric from its fourth-quarter earnings stood head and shoulders above the competition. Pinterest grew its average revenue per user (ARPU) 1% globally and 6% in the U.S. and Canada.
That might not sound like much. But when compared to its peers Snap (NYSE: SNAP) and Meta Platforms (NASDAQ: META), Pinterest's number blew them out of the water. While the industry reels from secular headwinds and an increased focus on data privacy, Pinterest is set to show meaningful revenue growth with good potential for operating leverage. All that translates into earnings growth for investors over the long run.
How Pinterest stacks up
Looking at Pinterest's ARPU growth shows a stark contrast when compared to Snap's Snapchat and Meta's Facebook.
| Company | Global ARPU Growth | North American ARPU Growth |
|---|---|---|
| 1% | 6% | |
| (7%) | (3%) | |
| Snapchat | (15%) | (9%) |
Data source: Pinterest, Meta Platforms, and Snap. Table by author.
With a secular slowdown in social media ad-spending growth, it wasn't a big surprise when both Meta and Snap reported declines in North American revenue for the quarter. While both companies added new users to their social networks to offset the decline, it wasn't nearly enough to make up the difference.
By comparison, Pinterest ended 2022 with 95 million American and Canadian users, the same number it had at the end of 2021. That number falls short of Snapchat, Facebook, and many other social networks.
"We're much more focused on how do we drive deeper engagement with the users we have," CEO Bill Ready said on the company's fourth-quarter earnings call. And the ARPU numbers speak to that strategy's success.
What's driving ARPU
Several factors are helping push Pinterest's user monetization higher. First, it's seeing improved engagement. Management pointed out the number of sessions increased faster than active users during the quarter. Additionally, the percentage of monthly active users visiting at least once a week has increased from 56% at the end of 2020 to 61% as of the end of 2022.
Driving that engagement was increased personalization and a push for more video. Notably, Meta pointed to similar factors driving higher engagement for Facebook and Instagram. However, Pinterest is more focused on shopping, design, and generally more monetizable content than the general entertainment that shows up on Facebook and Instagram. Short-form video remains a drag on Meta's results, by comparison.
Additionally, Pinterest has invested heavily in its advertising technology in order to improve measurement, targeting, and ad load. In fact, monetizable ad supply outpaced user growth by 15% last quarter. While it might not have the resources to keep up with the advertising technology of Meta, Pinterest is showing strong improvements in results for its advertisers.
Importantly, Pinterest benefits from the ways its users behave on the platform. Instead of a lean-back discovery service -- which is how most people use Instagram, Facebook, Snapchat, and many other social media platforms -- Pinterest users are actively searching and curating content. That provides a better targeting signal for advertisers, making Pinterest much more appealing in an environment with more uncertainty around ad conversion on social media.
What it means for investors
Strong growth in revenue per user is helping Pinterest on its path toward operating margin expansion. If each user generates more revenue each quarter, there's less pressure on Pinterest to grow its user base. That said, investors should expect the improvements Pinterest is making to lead to sustainable monthly active user growth as well.
Over the long run, that should lead to meaningful improvements in its profit margin. In the near term, management is focused on reducing operating expenses, cutting back on new hires and infrastructure, and making the most of what it has. Those efforts should lead to margin expansion over the coming year.
If Pinterest can continue to execute on driving engagement and improving ad technology while cutting back its spending, investors will be rewarded over the long run as the company's earnings improve.
