The bear market that began in early 2022 took a far heavier-than-average toll on shares of Pinterest (PINS -0.64%). At one point last year, the stock had fallen more than 80% from its pandemic-era high.
Sensing the need for change, co-founder Ben Silbermann installed Bill Ready as the company's new CEO in June. Under Ready's tenure, the social media stock has risen by more than 40% from its recent low. But it's still down by more than 67% from its peak, and until Ready shows success in lifting the company's average revenue per user (ARPU), Pinterest stock will likely gain little traction.
So what are the chances he can pull it off? And what would it mean for investors? Let's take a look.
Pinterest's ARPU problem
Pinterest differs from other social media sites because of the type of content it is designed to feature. Rather than being a place where people post personal pictures or pithy comments about their opinions and recent activities, Pinterest revolves around ideas and interests. "Pinners" -- as the company dubs its users -- pin photos, GIFs, and short videos onto boards based on their specific passions. These can involve travel, recipes, cars, knitting, fashion, TV shows, or any other topic driven by personal interests.
This model by nature results in Pinterest -- and its advertisers -- having a fair bit of knowledge about what each individual user likes. This gives it a competitive advantage over its social media peers, which often are left to make assumptions about users' interests based on less-informative data such as their age, location, income, and other variables.
The company has sold advertisers the ability to reach its users through "promoted pins" -- ads placed in front of users based on their specific interests. Unfortunately, that better ability to match ads to viewers has failed to translate into a high ARPU. In 2022, Pinterest's global ARPU reached $6.36, rising by 10% from 2021 levels. But in that same year, Snapchat parent Snap reported an ARPU of $12.98, and Meta Platforms generated ARPU of $39.63.
Turning adversity into opportunity
Silbermann hired Ready to lead Pinterest because he had served as the president of "commerce, payments, and next billion users" at Alphabet's Google. That made Ready look like a guy who had the experience and skills to help the company increase engagement even as the number of monthly active users (MAUs) was falling. Ready is also taking steps to strengthen the company leadership, improve operations to expand margins, and integrate shopping into the Pinterest platform.
Just over nine months into Ready's tenure in the top job, it is unclear whether the changes he's making will succeed in turning the company around. Nonetheless, there are some positive signs. Pinterest has reversed the downward trend in usage, and at the end of 2022, MAUs were up 4% year over year to 450 million.
But the financials offered a mixed picture. Revenue for 2022 came in at $2.8 billion, 9% higher than in 2021, but that growth rate was well under its 52% increase in 2021. Also, a 29% increase in costs and expenses led to a GAAP net loss of $96 million in 2022, in stark contrast to its net earnings of $316 million in 2021. Still, the $17 million profit it booked in Q4 could indicate that it's done with its time in the red.
Furthermore, the price-to-sales ratio stands at just under 7. That valuation may seem slightly elevated given that revenue growth is in the single-digit percentages. Still, that metric is near a record low for the company, and it may begin to rise back into the range it traded in during the pandemic's hotter phases if revenues -- and, by extension, ARPU levels -- increase significantly.
PINS PS Ratio data by YCharts.
Pinterest at a turning point
At this point, Ready can claim some early successes. The company's MAU declines have reversed, and the stock has risen steadily since he took over.
However, the extent of Ready's success will probably hinge on ARPU. If Pinterest can't reach the point where it's making as much from its average user as Snap does, that will mean continuing trouble for the company, and bad news for its shareholders. Conversely, if new leadership can use the site's combination of targeted advertising and shopping capabilities to dramatically boost average revenue per user, it could make Pinterest an excellent stock to own.
