Pinterest (PINS)

Social commerce platform Pinterest (NYSE: PINS) announced better-than-expected revenue in Q1 CY2025, with sales up 15.5% year on year to $855 million. Guidance for next quarter’s revenue was better than expected at $970 million at the midpoint, 0.6% above analysts’ estimates. Its non-GAAP profit of $0.23 per share was 9.8% below analysts’ consensus estimates.

Company Overview

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

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.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Pinterest’s sales grew at a decent 12.1% compounded annual growth rate over the last three years. Its growth was slightly above the average consumer internet company and shows its offerings resonate with customers.

This quarter, Pinterest reported year-on-year revenue growth of 15.5%, and its $855 million of revenue exceeded Wall Street’s estimates by 1%. Company management is currently guiding for a 13.6% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 13.1% over the next 12 months, similar to its three-year rate. This projection is noteworthy and implies the market is baking in success for its products and services.

User Growth

As a social network, Pinterest generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Pinterest’s monthly active users, a key performance metric for the company, increased by 10.4% annually to 570 million in the latest quarter. This growth rate is solid for a consumer internet business and indicates people are excited about its offerings.

In Q1, Pinterest added 52 million monthly active users, leading to 10% year-on-year growth. The quarterly print isn’t too different from its two-year result, suggesting its new initiatives aren’t accelerating user growth just yet.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Pinterest’s audience and its ad-targeting capabilities.

Pinterest’s ARPU growth has been mediocre over the last two years, averaging 4.8%. This isn’t great, but the increase in monthly active users is more relevant for assessing long-term business potential. We’ll monitor the situation closely; if Pinterest tries boosting ARPU by taking a more aggressive approach to monetization, it’s unclear whether users can continue growing at the current pace.

This quarter, Pinterest’s ARPU clocked in at $1.52. It grew by 4.1% year on year, slower than its user growth.

A company’s gross profit margin has a significant impact on its ability to exert pricing power, develop new products, and invest in marketing. These factors can determine the winner in a competitive market.

For social network businesses like Pinterest, gross profit tells us how much money the company gets to keep after covering the base cost of its products and services, which typically include customer service, data center, and other infrastructure expenses.

Pinterest has robust unit economics, an output of its asset-lite business model and pricing power. Its margin is better than the broader consumer internet industry and enables the company to fund large investments in new products and marketing during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 78.9% gross margin over the last two years. That means Pinterest only paid its providers $21.10 for every $100 in revenue.

In Q1, Pinterest produced a 76.7% gross profit margin, marking a 1.2 percentage point increase from 75.5% in the same quarter last year. Pinterest’s full-year margin has also been trending up over the past 12 months, increasing by 1.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Consumer internet businesses like Pinterest grow from a combination of product virality, paid advertisement, and incentives (unlike enterprise software products, which are often sold by dedicated sales teams).

Pinterest is efficient at acquiring new users, spending 35.4% of its gross profit on sales and marketing expenses over the last year. This efficiency indicates relatively solid competitive positioning, giving Pinterest the freedom to invest its resources into new growth initiatives.

EBITDA is a good way of judging operating profitability for consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a more standardized view of the business’s profit potential.

Pinterest has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 27%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Pinterest’s EBITDA margin decreased by 1.8 percentage points over the last few years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Pinterest generated an EBITDA profit margin of 20.1%, up 3 percentage points year on year. The increase was encouraging, and because its EBITDA margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Pinterest’s EPS grew at an unimpressive 9.8% compounded annual growth rate over the last three years, lower than its 12.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of Pinterest’s earnings can give us a better understanding of its performance. As we mentioned earlier, Pinterest’s EBITDA margin improved this quarter but declined by 1.8 percentage points over the last three years. Its share count also grew by 4.9%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

In Q1, Pinterest reported EPS at $0.23, up from $0.22 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Pinterest’s full-year EPS of $1.49 to grow 23.6%.

Although EBITDA is undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Pinterest has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging 24.7% over the last two years.

Taking a step back, we can see that Pinterest’s margin was unchanged over the last few years, showing its long-term free cash flow profile is stable.

Pinterest’s free cash flow clocked in at $356.4 million in Q1, equivalent to a 41.7% margin. The company’s cash profitability regressed as it was 4.8 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t put too much weight on this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Pinterest is a profitable, well-capitalized company with $2.62 billion of cash and $144 million of debt on its balance sheet. This $2.47 billion net cash position is 13.4% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Pinterest beat analysts’ revenue and EBITDA expectations this quarter. We were also glad it expanded its number of users. On the other hand, its EBITDA guidance for next quarter missed. Overall, this print had some key positives. The stock traded up 16% to $32.35 immediately after reporting.

Updated: May 16, 2025 at 10:14 PM EDT

Are you wondering whether to buy Pinterest or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are definitely a lot of things to like about Pinterest. First off, its revenue growth was good over the last three years and is expected to accelerate over the next 12 months. And while its declining EBITDA margin shows the business has become less efficient, its impressive EBITDA margins show it has a highly efficient business model. On top of that, its projected EPS for the next year implies the company’s fundamentals will improve.

Pinterest’s EV/EBITDA ratio based on the next 12 months is 17.9x. When scanning the consumer internet space, Pinterest trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $40.59 on the company (compared to the current share price of $31.99), implying they see 26.9% upside in buying Pinterest in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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