Pinterest (NYSE:PINS) Misses Q4 Revenue Estimates, Stock Drops

Full Report / February 07, 2023
Add to Watchlist

Social commerce platform Pinterest (NYSE: PINS) fell short of analyst expectations in Q4 FY2022 quarter, with revenue up 3.6% year on year to $877.2 million. Pinterest made a GAAP profit of $17.4 million, down on its profit of $174.6 million, in the same quarter last year.

Pinterest (PINS) Q4 FY2022 Highlights:

  • Revenue: $877.2 million vs analyst estimates of $886.7 million (1.07% miss)
  • EPS (non-GAAP): $0.29 vs analyst estimates of $0.28 (4.34% beat)
  • Free cash flow of $57.2 million, down 17.5% from previous quarter
  • Gross Margin (GAAP): 78.9%, down from 83.3% same quarter last year
  • Global Monthly Active Users: 450 million, up 19 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 very strong, averaging 39.9% annually. The initial impact of the pandemic was positive for Pinterest's revenue, but growth rates subsequently normalized.

Pinterest Total Revenue

This quarter, Pinterest reported a rather lacklustre 3.6% year on year revenue growth, falling short of Wall St expectations.

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 3.04% annually to 450 million users. This is a bit slower growth than what we see in some of the hottest consumer apps.

Pinterest Global Monthly Active Users

In Q4 the company added 19 million monthly active users, translating to a 4.4% 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 33.1%. 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 shrank 0.76% year on year, settling in at $1.94 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.

It is relatively expensive for Pinterest to acquire new users, with the company spending 43.6% of its gross profit on marketing over the last year. This level of sales and marketing spend efficiency indicates Pinterest has to compete for users and points to Pinterest likely having to continue to invest to maintain growth.

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 was $195.7 million this quarter, which translates to a 22.3% margin. Over the last twelve months, the company has exhibited strong profitability with average EBITDA margins of 15.1%.

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 $57.2 million in Q4, down 72.4% year on year.

Pinterest Free Cash Flow

Pinterest has generated $440.2 million in free cash flow over the last twelve months, 15.7% of revenues. This strong FCF margin is a result of Pinterest asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from Pinterest's Q4 Results

Sporting a market capitalization of $18.6 billion, more than $2.69 billion in cash and with positive free cash flow over the last twelve months, we're confident that Pinterest has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. On the other hand, it was unfortunate to see that Pinterest missed analysts' revenue expectations and the user growth was quite weak. Overall, this quarter's results were not the best we've seen from Pinterest. The company is down 10.6% on the results and currently trades at $24.95 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. Although we have other favorites, we understand the arguments that Pinterest is not a bad business. Its revenue growth has been impressive, and that growth rate is expected to increase in the short term! And while its user growth has been slower, the good news is its increasing ARPU shows growing value of its platform .

At the moment Pinterest trades at next twelve months EV/EBITDA 35.9x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Pinterest doesn't trade at a completely unreasonable price point.

To get the best start with StockStory check out our most recent Stock picks, and then sign up to our earnings alerts by adding companies to your watchlist here. We typically have the quarterly earnings results analyzed within seconds from the data being released, and especially for the companies reporting pre-market, this often gives investors the chance to react to the results before the market has fully absorbed the information.