2023-04-28 13:14:35 ET
Pinterest ( NYSE: PINS ) stock slid more than 18% Friday -- what would be by far the Communication Services sector's biggest decline, if not for Snap (also down 18% ).
Unlike Snap , Pinterest pulled off a beat with its first-quarter earnings . But investors appeared to focus more on its outlook, which pointed to no real ramp in second-quarter revenue growth -- but with a double-digit increase in operating costs.
Cutting those expenses in the second half will put a limit on gains in market share and average revenues, Benchmark analyst Mark Zgutowicz said, drawing another contrast with higher flyers in the digital ad space.
"Contrast with META’s 1Q revenue acceleration, PINS remains relatively pressured based on 2Q guidance," he said, "and we expect management’s expected S&M cuts on growth initiatives will only further mitigate potential for digital market share gains, and subsequent [average revenue per user] languish relative to peers."
The company reiterated its expectations to expand operating margin, but the heavy growth in opex in Q2 puts a greater risk on second-half revenue and user trajectory, he noted. Meanwhile, though Pinterest says Gen Z is driving its net subscriber additions, growth is "materially weighted" toward rest-of-world, which will keep diluting ARPU, he said.
The first quarter was a beat but the Q2 guidance implies revenue growth about 170 basis points below consensus amid "limited" visibility, Citi's Ronald Josey said -- that, as the opex cost increases shows the second half will face serious pressure to expand margins, which creates execution risk.
"That said, we are incrementally encouraged by strengthening engagement trends, Shopping progress given the mission to make every Pin shoppable, and its new Amazon [third-party] advertising partnership," Josey said. He maintains the stock as a Neutral pick with high risk, and a $28 price target.
KeyBanc sounded an upbeat note, saying it was "still confident" in margin expansion to come.
"While we suspect the 1Q result will likely invite some debate over the pace of improvement, we believe that: (1) solid time spent growth is creating more monetizable opportunities, such as the new Amazon partnership; and (2) margin expansion is still on track when normalizing for expense shift from 1Q to 2Q," analyst Justin Patterson said.
Patterson kept an Overweight rating and a $32 price target -- after Pinterest's Friday dive, that implies 43% upside from here.
For more detail, dig into Pinterest's earnings call presentation and Seeking Alpha's earnings call transcript .
For further details see:
Pinterest dives 18% on results, as cost guidance puts doubt on margin expansion