Oh, how the tables have turned for so many online businesses as the world has emerged from the pandemic. Case in point: Pinterest (PINS -0.53%), which was profitable in 2021, but fell into the red in 2022 and has started 2023 with a loss of $0.31 per share. That's not a great trend.
Still, there are some positives here that suggest this unique image-sharing and social media site could eventually turn sustainably profitable. Let's take a look.
Image source: Getty Images.
A pandemic benecifiary
Pinterest went public in April 2019. The company's business model is very distinctive. It basically allows its users to "pin" images, websites, and other digital entries to a "board" that can be shared with others online.
It lost money at first, which isn't shocking for a new company. But Pinterest managed to turn a profit in 2021 on a roughly 50% year-over-year increase in revenue. This was during the retail upheaval caused by the coronavirus pandemic. That makes sense since consumers were stuck at home and likely noodling more on the internet.
The company's revenue trended higher in 2022, but not at the same clip (it was up 9% for the year). That, too, makes sense since people have had the opportunity to get back to normal life again. The fact that earnings fell back into the red doesn't seem shocking.
The importance of advertising
Pinterest generates revenue from advertising aimed at the people who visit these boards. So the company needs to have as many people using its service as possible. At the end of the first quarter of 2023, that figure was roughly 463 million, up 7% year over year.
To understand how important the user number is, however, you need to look at the revenue per user, which totaled just $1.32 in the first quarter of 2023, down a penny year over year. The U.S. market is by far the most profitable, with average revenue per user of $5.11. Europe comes in next with $0.74, and the rest of the world sits at a tiny $0.10.
Revenue per user was down a penny overall despite increases in each geographic region, most likely because of higher user growth in non-U.S. markets. Still, it is easy to see that Pinterest needs to keep growing its user base if it wants to be sustainably profitable.
Getting from here to there
It's hard to classify Pinterest since it combines the qualities of a retailer, advertiser, and social media company. But regardless of how you actually define the business model, it is clear that it needs to invest in its product so that it keeps pace with consumer desires.
That costs money, and with red ink back on the bottom line, investors are probably right to be worried about the future. The stock has fallen roughly 70% from its 2021 peak.
A fortress balance sheet
But there's an important fact to keep in mind with Pinterest, and it can be found on the company's balance sheet. At the end of the first quarter of 2023, it had roughly $1.65 billion in cash. That's a big figure, but it isn't the end of the story because the company also has nearly $1.1 billion in investments, labeled as marketable securities. Together, that brings the company's cash or cash-like assets to a huge $2.7 billion or so.
But wait, there's more! Pinterest also has no long-term debt. That should give management a long runway to keep building its service and subscriber base. And despite quarterly ups and downs, trailing-12-month revenue is still heading in an upward trajectory.
Not for everyone
While Pinterest has plenty of cash and seems like it is still moving closer to sustained profitability, it is a unique story. The business model might not resonate with all investors, and if you don't quite understand why someone would use Pinterest, you might want to avoid the stock.
However, more-aggressive long-term investors might find the appeal of this sort of retailer-advertiser-social media company an interesting opportunity. Now that Wall Street seems to have lowered its long-term expectations for the shares, the slow and steady growth Pinterest is achieving could be much more rewarding for intrepid investors.
