Shares of Pinterest (PINS 0.02%) were soaring higher after the company reported strong first-quarter results and issued an upbeat outlook. Following its recent gains, the stock is up almost 90% over the past year.
Let's look at why it's climbing higher and whether or not it's too late to buy shares of the online vision board company.
Revenue growth acceleration and rising ARPU
Over the past year, Pinterest has seen its revenue growth accelerate nicely each quarter. However, in the first quarter, the top line took off.
Revenue increased 23% year over year to $740 million with consistent strength across all regions. Monthly active users (MAUs) also rose with year-over-year growth accelerating to 12%. Once again, these gains came largely from outside North America with MAUs rising 10% in Europe and 16% in the rest of the world. U.S. & Canada MAUs increased just 3%.
The biggest opportunity for Pinterest, though, isn't necessarily growing its user base but monetizing it. This is an area where Pinterest has long trailed other social media companies such as Meta Platforms and Snap. On that front, Pinterest made some strong progress in Q1 too.
During the quarter, Pinterest saw its average revenue per user (ARPU) climb 11% year over year to $1.46. However, given the big difference in ARPU by region, it's best to look at each one individually. In the U.S. & Canada, ARPU soared 19% to $6.05, while European ARPU jumped 17% to $0.86. For the rest of the world, ARPU rose 8% to $0.11.
Improving each of these regional ARPU metrics will be the single biggest growth driver for the company moving forward. While it's still adding new users, most are coming from regions with lower ARPUs.
Pinterest is generating these strong results by improving the experience for both users and advertisers. On the user experience front, the company has been investing in artificial intelligence (AI) and advanced computer vision technology to improve recommendations and personalization. A shift to graphics processing unit (GPU) servers has also increased speed and performance, while new board functionality introduced organizational features and collages to gather inspiring content in one place.
On the advertising side of the business, the company continues to integrate more shoppable content and team up with retailers. It also developed new tools for advertisers, such as dynamic creative optimization and ROAS-level (return on ad spend) bidding.
The former helps advertisers on the creative end by giving them generative AI tools to improve their ads. At the same time, the latter lets them maximize their advertising spending by optimizing ad campaigns in real time to prioritize specific products or customers.
Taken all together, Pinterest is creating a platform where users want to spend more time, and advertisers are getting strong returns on their ad budgets targeting these users. Given that Pinterest users are often looking for shopping inspiration, the company is building a very attractive platform for advertisers to target potential customers directly. This is a win-win for all of the company's stakeholders.
Pinterest has also signed recent partnerships with Amazon and Alphabet to help better monetize its user base. The company uses Amazon ads in the U.S. to bring more shoppable content to its platform, while it uses Google to help it better monetize international users where its reach is not as good. Both of these partnerships are in the early stages and have a lot of room for growth.
Is it too late to buy the stock?
Even with its impressive gains over the past year, Pinterest's valuation has only climbed to a forward price-to-earnings (P/E) ratio of 28.1 and a price-to-sales (P/S) ratio of 7.6.
So far, its AI and other improvements are showing great early results, and its Amazon and Google partnerships are just starting to kick in. The platform still has a lot of room to further monetize its user base with both ARPU and overall revenue growth.
Given the potential upside still ahead, it's not too late to invest in Pinterest.
