2023-08-07 16:33:45 ET
Summary
- I was disappointed with Pinterest, Inc.'s Q2 2023 earnings as the results fell short of my expectations for significant growth.
- Despite broad user growth, the company's guidance for high single digits didn't excite investors, leading to a stagnant stock performance over the past year.
- The company's bull case of becoming more than just an ideas platform and focusing on actionability didn't fully materialize in this quarter's results.
- However, Pinterest remains determined to present a comeback story, with a focus on improving monetization and benefiting from its partnership with Amazon in early 2024.
Investment Thesis
Pinterest, Inc. ( PINS ) didn't deliver the sort of earnings result that I had hoped to see. Pinterest's Q2 earnings result was ''a to be continued'' story.
Fundamentally, Pinterest guiding for high single digits is hardly going to get anyone excited in this once rapidly growing advertising company.
But as always is the case, details matter. Pinterest continues to see broad user growth across all regions. Furthermore, expectations from investors are muted, with the stock going nowhere fast in the past 1 year.
Tilting The Needle
As we headed into Pinterest's earnings results, I wrote an analysis titled Pinterest's Make-Or-Break Moment, where I said,
Do you want to know the secret to investing? The bulk of the money is made in a change of story. This can either work when you are shorting a stock or going long.
What you want is to position yourself at the inflection of a changing story. This will not always work. And you'll make mistakes. Even Warren Buffett makes mistakes. But what you want is to go long companies where the underlying fundamentals are about to change in twelve months, but the story is stodgy, boring, and static.
At the time, I believed that Pinterest would be able to build on its changing story and proceed to deliver guidance to show that its changing narrative is starting to get reflected in progressively improved outlooks.
That was my underlying thesis, and it turns out that Pinterest didn't live up to my investment thesis, and the stock has now retraced back to where it was in the weeks leading up to the earnings analysis.
More specifically, the bull case didn't pan out, but there weren't any significant losses either. Investors had low expectations going into the earnings reports, and this set of results wasn't good enough to give bulls or bears enough material to tip the balance of the investment thesis in either direction.
Pinterest's Near-Term Prospects
Pinterest's bull case is changing. Pinterest wants investors to buy into the idea that Pinterest can be more than just a place for users to gather ideas and a place that can be shoppable.
Incidentally, between Pinterest's earnings release and CEO Bill Ready's prepared remarks on the call, I counted 10 instances of the word ''action'' or ''actionable'' being referenced. The message that Pinterest wants to drive to the investment community is that Pinterest can be more than just a top-of-the-funnel advertising platform.
Pinterest doesn't want to be seen as falling into the same trap that Tripadvisor ( TRIP ) fell into. A site with a massive and engaged user base, but one that struggles to get users to transact through the website. The other comparison, which contextualizes some of Pinterest's struggles, is Snap ( SNAP ).
That being said, I believe that Tripadvisor has more resemblance to Pinterest's troubles than Snap, even though most readers would immediately think of Snap as a more apt comparison to Pinterest. Why do I believe that Trip makes more sense?
Because Trip also is a site where users start their discovery. And I am not convinced that many users go on Snap for any sort of meaningful ''discovery'' search.
Another crucial similarity between Trip and Pinterest is that both sites have adults intent on spending on an experience. While Snap is to a large extent used by millennials, without deep wallets.
Nevertheless, Pinterest is determined to present to investors that its story isn't over.
Pinterest's 2024, Ready for a Come Back
The advertising market is in turmoil. Everyone that follows advertising companies knows this. However, as we look out to 2024, the macro environment is expected to be more benign than in 2023, particularly in the early parts of 2023.
What's more, consider this quote from Pinterest's earnings call ,
As I said on our last call, a partnership of this scale [with Amazon ( AMZN )] will be a multi-quarter implementation with the most meaningful revenue impact likely being in early 2024. However, we have recently begun testing live traffic with Amazon ads. We are very pleased with the pace of implementation in Q2 and the early results of our testing in Q3 so far.
Yes, Pinterest's 2023 has left a lot to be desired. But Pinterest's platform continues to resonate strongly with a growing community. As a point of reference, consider the table that follows.
You can see, above, that Pinterest's user growth is broad. With grow also seen in the highly coveted U.S. and Canada.
Accordingly, there's clearly tremendous user appeal for Pinterest's platform, even now. There's only a challenge in how to better monetize its users. Something that management is clearly busily working on. And if management were for any reason to ''forget'' of this pressing urgency to better monetize its users, I suspect activist shareholder Elliott Management, with its large stake in Pinterest, will be nearby to keep management focused on this north start.
The Bottom Line
In my assessment of Pinterest's Q2 2023 earnings, I found that the company's results were disappointing and did not meet the high expectations I had hoped for.
While Pinterest saw broad user growth across all regions, its guidance for high single digits did not excite investors, leading to the stock remaining stagnant.
The company's bull case, focused on becoming more than just a top-of-the-funnel platform and emphasizing actionability, didn't fully materialize in this quarter's results.
Despite low expectations going into the earnings report, Pinterest's changing narrative was not enough to sway investor sentiment significantly in either direction.
However, the company remains determined to present a comeback story, with a focus on improving monetization and potentially benefiting from its partnership with Amazon in early 2024.
Despite the challenges, Pinterest's platform continues to resonate with its growing community. The key challenge lies in finding ways to better monetize its user base, something that the management is actively working on, and activist shareholder Elliott Management is likely to keep the management focused on this goal. Stick with this stock.
For further details see:
Pinterest Q2 Earnings: Charting The Path To Monetization Success In 2024