Pinterest (PINS 4.04%) is likely on the verge of a rebound. The company released its earnings for the second quarter on Aug. 1, and the stock sold off slightly in the following trading session.
No, the rapid growth during the pandemic has not yet returned. Nonetheless, the company is in the midst of a strategic pivot, and that change of direction is already bearing fruit. With that in mind, three reasons explain why I'm sticking with Pinterest stock.
Reason No. 1: Growing usage
In Q2, Pinterest reported a monthly active user (MAU) base of 465 million, up 8% year over year. This is a significant change from late 2021 and early 2022 when MAUs declined for three straight quarters.
The recent bear market devastated Pinterest stock, taking it from a high of almost $90 per share to below $20. Many investors were scared off by Pinterest's shrinking user base as people around the world emerged from lockdowns and spent less time online.
That weakness likely contributed to the end of co-founder Ben Silbermann's tenure as CEO, and the company appointed Bill Ready to lead the company in June 2022. Under Ready, the site has taken a turn into direct e-commerce, and a critical change of direction may have helped spark a revival in MAUs.
Reason No. 2: Shoppable pins
That growing user base is increasingly engaging with Ready's e-commerce initiatives, including "shoppable pins," which allow users to buy items directly through a Pinterest pin.
Because Pinterest allows users to collect pins based on their passions and interests, there is a lot of revenue potential for the company if it can help users buy the products and services they discover through the platform. Featured sellers on Pinterest get immediate access to an engaged and motivated customer base.
Moreover, the move into shoppable pins just received a considerable boost due to an announced partnership with Amazon. "This [partnership] aligns with our goal of making every Pin shoppable, so that we can enable as many users as possible to bring their dreams to life," Ready said in April.
Pinterest will begin rolling out new products and brands from the arrangement later this year.
Reason #3: Improving financials
Furthermore, the company's recent history adds greater importance to its financials. In 2021, Pinterest teased investors as pandemic-driven revenue growth helped the company report positive GAAP earnings. That trend reversed as growth slowed and MAU numbers declined.
Investors hope the new leadership and e-commerce push will bring sustainable profits. While the second quarter did not deliver that outcome, revenue of $708 million was up 6% year over year, and its net loss narrowed to just $35 million. On a non-GAAP basis, which excludes Pinterest's sizable stock-based compensation expenses, net income doubled in the second quarter to $143 million.
Though the stock is trailing the broad market in 2023, shares are still up 11% year to date. With a price-to-sales (P/S) ratio of 6.3, it is still trading at levels not seen since the very start of the pandemic when the platform boasted about 20% fewer active users than it has now. Such conditions give bulls reason for optimism about Pinterest's future.
Consider Pinterest stock
Pinterest's strategic shift should bode well for its stock. MAU counts are back on a growth trajectory, and shoppable pins give users more reasons to spend time and money with the company.
As Pinterest leverages its new identity as an e-commerce platform, continued progress with its new initiatives and partnerships should revive enthusiasm for this social media stock.
