The good news is that Pinterest (PINS 4.04%) grew its top line to the tune of $42 million during its second quarter of the year. The bad news is that this growth cost the company an extra $81 million to produce.
Pinterest's operating loss more than doubled year over year, in fact, while its net loss only contracted thanks to a tax-based benefit. It's not exactly a step in the right direction for the new and improved Pinterest. That's why shares fell following the release of its second-quarter numbers, despite top-line growth.
There's an important footnote about this company's Q2 results that's being mostly overlooked, however. That is, Pinterest didn't exactly spend an additional $81 million to produce $42 million worth of revenue growth. It effectively only spent another $29 million on the growth effort.
In other words, it is getting more bang for its spent buck.
Things aren't quite what they seem
For its Q2, quirky social media platform Pinterest turned $708 million worth of sales into a per-share loss of $0.05. Both are better than year-ago comparisons of $666 million and a loss of $0.07 per share.
As was noted, however, were it not for a $13.9 million year-over-year beneficial swing in its tax provisions, the company's loss would have grown due to markedly higher costs. The quarter's income statement tells the tale of how much things changed between last quarter and the same quarter a year earlier.
Image source: Pinterest's Q2 2023 report.
Except, the income statement paints a somewhat misleading picture. Of that additional $81 million in spending done last quarter, roughly $52 million was the result of increased employee compensation in the form of shares of the company.
Image source: Pinterest's Q2 2023 report.
Don't misread the message. Any type of outlay that adds or subtracts value from a company should be reflected on an income statement and/or a balance sheet. In fact, GAAP (generally accepted accounting principles) requires it.
But by the exact same token, if an expense isn't an actual cash outlay, then it's not exactly draining a company of its liquidity -- even if it is diluting existing shareholders.
So how exactly did Pinterest's spending -- its non-GAAP spending -- change last quarter? That information was detailed during its Q2 conference call. Sales and marketing spending grew quite a bit to help fund the company's current expansion effort, while actual cash-based research and development costs and its cost of revenue grew less than revenue growth of 6%. General and administrative spending actually fell 15% year over year due to workforce reductions implemented in March of this year.
Image source: Pinterest's Q2 2023 earnings call slide deck.
Connect the dots. Pinterest isn't spending recklessly to generate sales growth at any and all costs. The cash it's burning is creating a fair (and immediate) return on the investment.
Pinterest still offers more reward than risk
None of this is to suggest investors should simply ignore the fact that Pinterest is issuing more shares to compensate its employees. It's easy to become too reliant on using newly issued stock just like cash to keep employees around; ordinary, non-employee investors are often the ones that practice hurts the most. Current Pinterest shareholders should certainly keep their finger on the pulse of this trend.
However, companies have to pay their workers something now to build an organization capable of driving growth in the future. In Pinterest's case, the stock-based compensation that's seemingly costing a great deal right now may actually be a brilliant investment in the company's long-term growth.
Analysts think so, anyway. Although this year's projected top-line growth of 7% isn't exactly thrilling, the analyst community is calling for nearly 14% growth next year. That should be enough to drive the company's per-share profit up from last year's $0.62 to $0.80 this year en route to $1.01 per share for 2024.
The possibility of achieving these growth targets is at least still strong enough to make Pinterest a speculative buy ... especially following the stock's post-earnings tumble.
