Whether the rally since the end of last year marks the beginning of a new bull market is in question. There is one certainty, though: A new bull market is coming sooner or later -- probably sooner. You're better served by being in the market at the beginning than chasing one after it's begun.
And one name you might want to start the next bull market with is Pinterest (PINS 4.04%).
It's a curious company to be sure. While categorized as a social media platform, Pinterest is decidedly different than leading names like Meta's Facebook or Twitter. The whole idea is that its users "pin" things they like to one of their topically organized digital bulletin boards and then share those boards with other like-minded people. Pinterest makes money in this process by injecting the occasional advertisement into the results of users' searches.
While the platform is well appreciated by its 463 million users, that number has not grown much since the COVID-19 pandemic wound down. Revenue growth is slowing to a crawl, too, and investors can't help but notice that the company is moving deeper into the red. This slide follows a brief period of profitability it achieved at the height of the pandemic, when the world was largely stuck at home and leaning heavily on the web for entertainment.
There are three reasons an economically-driven new bull market could prove game changing for Pinterest's top and bottom lines, though, making the stock's weakness since early 2021 a buying opportunity.
1. Pinterest is turning up the heat on tech that drives revenue
The website has always been mindful that brands need responses to the ads they're paying Pinterest to post. But the company has only recently taken the value it offers advertisers to the proverbial next level.
For example, in October, Pinterest unveiled a suite of new tools that specifically allow an advertiser to identify new search trends at the site and measure responsiveness to the advertising they're paying for. The earliest users of these tools saw a 36% increase in conversations that are attributable to a particular product or type of ad. The new trend-spotting tools help advertisers identify seasonal spending and break down Pinterest's audience by age, time, and location.
It's not just a handful of new technological widgets making Pinterest a more powerful advertising platform for brands, though. The company's rethinking how it packages its platform, too.
Earlier this month, for example, Pinterest unveiled Travel Catalogs and its Premiere Spotlight advertising option.
- Travel Catalogs, as the name suggests, are digital catalogs aimed specifically at users planning a potential trip. These consumers are likely to be in the market for some very specific goods and services.
- The Premiere Spotlight is a turn-key solution allowing advertisers to feature video ads on the Pinterest search page while also offering the option of large-format ads on mobile devices.
And that's just a taste of the technological evolutions underway for Pinterest right now.
2. The company is leveraging business-building partnerships
Pinterest's evolutions aren't just technological; they're strategic, too. Namely, it's embracing traffic-driving partnerships with competitors. Case in point: In April, the company announced it would start allowing third-party ads at the site, beginning with ads from none other than e-commerce powerhouse Amazon.
Although the initiative carries the risk of potentially pulling a Pinterest user away to a different website, the program also gives the company a shot at showing users a more relevant advertisement than might otherwise appear among a user's search results. Pinterest has a variety of advertising customers, but it doesn't necessarily have advertisers for every single product category.
It's not just Amazon, however. In January, Pinterest and media outfit Condé Nast teamed up to make 160 videos aimed at the fashion and home decor markets. And late last year, the company partnered with Warner Music Group to allow users and creators to add even more royalty-free tunes to their digital bulletin boards.
3. It ramped up its monetization efforts at the unluckiest time
Last but not least (in fact, perhaps most important), Pinterest stock is a buy in anticipation of a new bull market, specifically because all of the aforementioned growth initiatives were introduced at the worst possible time. We've not yet seen their full possible upside when the economy is firing on all cylinders.
While the stock market was soaring for most of the COVID-19 pandemic, it's not clear we ever actually shrugged off the virus's economic impact.
Jobs came back, and spending resumed. Ditto for corporate expenditures. But we're still paying the price for the stimulus-induced rebound in the form of elevated inflation that has driven interest rates to multiyear highs. The subsequent inversion of yield curve also says we should at least acknowledge that a recession could be in the offing.
In other words, the economy has been disrupted since early 2020 when the coronavirus first swept across the world. We've never seen the new and improved -- and still improving -- Pinterest operating in an environment in which it can truly thrive. Investors are arguably underestimating this potential.
Well worth the risk for most
Is this stock a perfect pick for everyone's portfolio? No. Pinterest still brings some risk to the table. Competition in the social media space could draw users away from Pinterest, and the barriers to entry in the web space are pretty low, after all, particularly for companies with an existing web presence.
On balance, though, Pinterest's potential reward is greater than its prospective risk. If you can stomach above-average volatility stemming from uncertainty for a while, this is a long-term pick that's worth the bumpy ride.
