Pinterest (PINS 4.04%) went public at $19 per share on April 18, 2019. The social media company's stock opened at $23.75, and eventually soared to an all-time high of $89.15 on Feb. 16, 2021. But today, it trades at about $35 a share.
Therefore, a $10,000 investment in Pinterest's initial public offering (IPO) would have briefly blossomed to $46,921 before shrinking back to about $18,400. An 84% gain in less than five years isn't too bad, but it still burned a lot of investors who had chased Pinterest's post-IPO gains. Let's see why this stock soared, why it tumbled, and where it might be headed.
Image source: Pinterest.
Why did the bulls rush to Pinterest?
When Pinterest went public, it impressed the bulls with its rapid growth in monthly active users (MAUs), its ability to carve out a niche in the crowded social media market with its virtual pinboards, and its growth potential as a "social shopping" platform. Pinterest was also mainly used to share hobbies, interests, and shopping ideas -- so it was naturally insulated from the hate speech, harassment, and fake news that plagued other social media platforms like Meta Platforms' Facebook and Twitter (now known as X).
During the pandemic, Pinterest's growth in users and revenue accelerated as more people looked for recipes, family activities, home improvement projects, and online shopping ideas on its pinboards. That acceleration coincided with the buying frenzy in growth and meme stocks, and the bulls drove Pinterest's stock to its all-time high.
Pinterest's revenue rose 51% in 2019, 48% in 2020, and 52% in 2021. Its global MAUs increased from 335 million at the end of 2019 to 431 million at the end of 2022. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin expanded from just 1% in 2019 to 32% in 2021, and it turned profitable on a generally accepted accounting principles (GAAP) basis in 2021 with a net profit margin of 12%.
Those growth rates convinced many investors that Pinterest had plenty of upside potential, and its enterprise value reached $54.3 billion at its all-time high. That was 21 times the revenue and 67 times the adjusted EBITDA it would generate in 2021.
Why did the bulls retreat over the past three years?
Unfortunately, Pinterest couldn't sustain those premium valuations after the pandemic ended and people used its pinboards less frequently. That deceleration coincided with macro headwinds for the broader advertising sector, and many investors wrote off Pinterest as a fad stock that would fizzle out in a post-pandemic market. Rising interest rates then popped its bubbly valuations and its stock plummeted.
Fierce competition from Meta's Instagram and ByteDance's TikTok in the social commerce market also squeezed Pinterest's margins and cast some doubts on its ability to expand its "shoppable pins" into a broader e-commerce platform. Meanwhile, the resignation of its co-founder and longtime CEO Ben Silbermann, an exodus of top executives, and a rumored takeover attempt by PayPal raised even more red flags.
Is Pinterest's business finally stabilizing?
Pinterest's revenue only grew 9% in both 2022 and 2023, and it turned unprofitable again on a GAAP basis in both years. However, its MAUs still rose 4% to 450 million in 2022 and increased 11% to 498 million in 2023.
Its layoffs and other cost-cutting measures also lifted its adjusted EBITDA margin from 16% in 2022 to 22% in 2023, and it returned to GAAP profitability in the second half of 2023.
That stabilization was driven by its healthy overseas growth, an influx of Gen Z users that reduced its dependence on older Millennial and Gen X users, fresh video content, the integration of more e-commerce features into its platform, and AI-driven recommendations. The broader digital advertising market has also been stabilizing in a warmer macro environment.
Analysts expect Pinterest's revenue and adjusted EBITDA to rise 17% and 33%, respectively, this year. Based on those expectations, Pinterest's stock looks reasonably valued at 6 times this year's sales and 23 times its adjusted EBITDA. Meta, which is growing its top line at a similar rate, trades at 8 times this year's sales.
Should you invest $10,000 in Pinterest today?
It was definitely a bad idea to buy Pinterest during the meme stock rally in early 2021, but its growth rates and valuations look a lot more sustainable today. Therefore, it might be a good idea to invest $10,000 in Pinterest today as a long-term bet on the secular expansion of the social media, digital advertising, and social shopping markets.
