Pinterest (NYSE:PINS) Posts Better-Than-Expected Sales In Q3, Stock Jumps 15.3%

Full Report / October 27, 2022
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Social commerce platform Pinterest (NYSE: PINS) reported Q3 FY2022 results topping analyst expectations, with revenue up 8.15% year on year to $684.5 million. Pinterest made a GAAP loss of $65.1 million, down on its profit of $93.9 million, in the same quarter last year.

Pinterest (PINS) Q3 FY2022 Highlights:

  • Revenue: $684.5 million vs analyst estimates of $666.6 million (2.68% beat)
  • EPS (non-GAAP): $0.11 vs analyst estimates of $0.06 ($0.05 beat)
  • Free cash flow of $275.9 million, up 157% from previous quarter
  • Gross Margin (GAAP): 73.3%, down from 79.9% same quarter last year
  • Global Monthly Active Users: 445 million, up 1 million year on year

Created with the idea of virtually replacing paper catalogues, Pinterest (NYSE: PINS) is an online image and social discovery platform.

Pinterest is an online content and visual discovery platform that allows its users to create personalized collections of curated design or inspiration ideas while also providing recommendations based on a user’s personal interests. One part search engine and one part media platform, Pinterest is a hybrid of ecommerce and social media platform. For its users, most of which are female, Pinterest is a platform that offers discovery of items such as recipes, fashion, and home goods, and does so in an aspirational social media like use case.

For advertisers, Pinterest’s scale of hundreds of million monthly users is a valuable platform to target advertising where users innately are actively moving from ideation to purchasing, which is exactly where advertisers most like to insert themselves, when a potential customer is showing buying intent. As a bonus, unlike other social media platforms, advertising on Pinterest is content, a unique situation for advertisers.

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Pinterest (NASDAQ: PINS) competes with fellow social media advertising platforms like Google (NASDAQ: GOOGL), Meta Platforms (NASDAQ:FB), Snapchat (NYSE: SNAP), and Twitter (NYSE: TWTR).

Sales Growth

Pinterest's revenue growth over the last three years has been impressive, averaging 43.4% annually. The initial impact of the pandemic was positive for Pinterest's revenue, but growth rates subsequently normalized.

Pinterest Total Revenue

This quarter, Pinterest beat analyst estimates but reported an mediocre 8.15% year on year revenue growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 10% over the next twelve months.

Usage Growth

As a social network, Pinterest can generate revenue growth by increasing user numbers, and by charging more for the ads each user is exposed to.

Over the last two years the number of Pinterest's monthly active users, a key usage metric for the company, grew 7.11% annually to 445 million users. This is an ok growth for a consumer internet company.

Pinterest Global Monthly Active Users

In Q3 the company added 1 million monthly active users, translating to a 0.22% growth year on year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for every consumer internet product and for Pinterest it measures how much it makes off ads served to each user, proxy for how valuable advertisers find its audience and its ad-targeting capabilities.Pinterest ARPU

Pinterest’s ARPU growth has been strong over the last two years, averaging 36.8%. The ability to increase price while still growing its user base shows the value of Pinterest’s platform, as its users continue to spend more than last year. This quarter, ARPU grew 7.91% year on year, reaching $1.53 for each of the monthly active users.

User Acquisition Efficiency

Unlike enterprise software that is typically sold by sales teams, consumer internet businesses like Pinterest grow by a combination of product virality, paid advertisement or incentives.

Pinterest is efficient at acquiring new users, spending 38.9% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency is indicative of a relatively solid competitive positioning, which gives Pinterest the freedom to invest its resources into new growth initiatives.

Earnings & Free Cash Flow

Investors typically look at a company’s operating income to get a sense of how profitable a core business is. Adjusted EBITDA is the most common profitability metric for consumer internet companies, similar to operating profit, but removes various one time or non-cash expenses to give a more normalized measure of profitability.

Pinterest's EBITDA came in at $77.3 million this quarter, which translated to a 11.2% margin. Over the last four quarters Pinterest has demonstrated a very strong profitability with average EBITDA margins of 19.9%.

Pinterest Adjusted EBITDA Margin

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Pinterest's free cash flow came in at $275.9 million in Q3, up 68.4% year on year.

Pinterest Free Cash Flow

Pinterest has generated $797.5 million in free cash flow over the last twelve months, an impressive 28.7% of revenues. This robust FCF margin is a result of Pinterest asset lite business model, scale advantages, and strong competitive positioning, and provides it the option to return capital to shareholders while still having plenty of cash to invest in the business.

Key Takeaways from Pinterest's Q3 Results

With a market capitalization of $14.8 billion, more than $2.66 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

It was good to see Pinterest outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. And it was good to see both ARPU and number of users still grow. Overall, this quarter's results were quite optimistic. The company is up 15.3% on the results and currently trades at $25.24 per share.

Is Now The Time?

When considering Pinterest, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Pinterest is a good business. Its revenue growth has been exceptional. On top of that, its powerful free cash generation enables it to sustainably invest in growth initiatives while maintaining an ample cash cushion, and its increasing ARPU shows growing value of its platform .

At the moment Pinterest trades at next twelve months EV/EBITDA 33.1x. There is definitely a lot of things to like about Pinterest and looking at the consumer internet landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $26.6 per share right before these results, implying that they saw upside in buying Pinterest even in the short term.

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