Following a difficult 2022, shares of Pinterest (PINS -0.52%) are enjoying a picture-perfect rebound. The social media platform's stock rose 13% through mid-April, compared to an 8% rally in the S&P 500.
That broader market rally surely played a role in Pinterest's positive returns so far in 2023. But investors also have some good reasons to feel optimistic about its business, which recently posted a return to user growth.
With that broader backdrop in mind, let's look at the short-term prospects for Pinterest shareholders.
Ending strong
There was a lot for investors to like in Pinterest's February earnings announcement. The company met management's growth target as sales rose 6% after adjusting for currency-exchange shifts. That increase was powered by a growing base of monthly active users, which now top 450 million.
User growth has returned in part thanks to changes that have made the platform more engaging, such as the algorithm's serving more personalized and relevant content. Management is planning even bigger improvements here in 2023, including by pushing deeper into video content.
Picture this
The company still faces challenges for fiscal 2023. The biggest is a sluggish digital-advertising market that's pressuring sales and profits. Still, Pinterest's average revenue per user expanded by 10% globally in the past year.
Investors will want to watch this metric for continued progress over the next several quarters. Success here, if paired with continued active user growth, will pave the way for the company to return to net profitability following losses in 2022.
PINS operating margin (TTM) data by YCharts. TTM = trailing 12 months.
Executives said in a conference call with investors that they're projecting strong cash flow and rising margins this year, with help from a cost-cutting program. "We remain confident in our long-term strategy," CEO Bill Ready said.
The 2023 outlook
Pinterest in late April will likely announce another period of modest sales growth. The company projected low single-digit revenue growth in the first quarter, along with slowing operating expenses.
Management didn't issue a wider 2023 outlook, but most Wall Street pros are looking for Pinterest to boost sales by about 9% this year to cross the $3 billion mark.
The stock's path over this time will depend partly on the wider market, which will swing in response to shifting sentiment around a potential recession developing in 2023. But Pinterest can also improve its prospects by showing more user growth and a steady march back toward profitability. Investors will be watching for signs of progress here in the company's first-quarter report in the coming weeks.
Meanwhile, the stock's valuation suggests that shares could continue beating the market if Pinterest's business remains on a positive trajectory. The stock is priced at about 7 times sales, down from over 20 times sales in mid-2021.
Wall Street isn't as forgiving about companies posting net losses today as it was in earlier phases of the pandemic. Yet Pinterest is creating a more efficient business, and so investors have good reasons to expect positive returns for the stock over the next year or so.
