2024-01-12 15:40:30 ET
Summary
- Pinterest, Inc. saw a big boost in users during Covid and aims to expand its user base beyond 500 million MAUs in 2024.
- The company's Global ARPU is low, but there is potential for significant revenue growth considering the ARPU generated by Facebook.
- While the stock is no longer cheap, investors can still see solid returns if Pinterest can generate 20%+ growth rates.
With the big market rally at the end of 2023, Pinterest, Inc. ( PINS ) stock surged ahead to prior resistance and support levels from pre-Covid. The social imaging stock isn't the big bargain from back around $25, but investors can still purchase Pinterest at these levels for solid returns into the future. My investment thesis remains Bullish on the stock, but Pinterest won't likely generate excessive returns up here at $38, though the chart looks positive for a bigger short-term rally.
Big 2024 Ahead
As with most social media companies, Pinterest saw a huge boost in users during Covid, leading to a massive spike in early 2021. The company took until the end of 2023 to finally surpass those peak numbers of 478 million monthly active users, or MAUs, back in Q1'21.
Pinterest will spend 2024 expanding the user base far beyond 500 million MAUs, setting the stage again for consistent revenue growth. The social commerce story already provides a clear path to much higher monetization in the future, requiring the company to generate limited user growth to squeeze out solid growth rates heading towards 20% again.
Remember, Meta Platforms ( META ) leads the sector with revenues set to sail past $150 billion this year. Pinterest and Snap ( SNAP ) remain secondary players in the adverting market with sales only in the $3 billion range, leaving a massive gap with the sector leader.
Pinterest grew MAUs by 8% YoY in Q3 to 482 million , and a similar path in 2024 would lead to a user count of 525 million by end of Q4. Either way, the user growth provides the base for nearly 10% revenue growth, and CEO Bill Ready's success at implementing social commerce features will dictate how far above 10% growth rates expand.
Global ARPUs (average revenue per user) are a joke at only $1.61 in Q3 2023. The company only grew Global ARPU by 3%, with Europe jumping 26%.
Of course, the biggest issue is that most of the user growth comes from the RoW, where ARPU is only $0.12. Pinterest will have a difficult time producing massive ARPU growth when new users will crash the per user metrics.
Facebook faces the same issue of the vast majority of new users from the RoW with limited monetization. Yet, the platform did $11.23 in global ARPU , with the U.S. & Canada up at a massive $56.11 in Q3'23 alone.
Big Upside
If Pinterest only grew their nearly 100 million U.S. & Canada MAUs to match the ARPU of Facebook, the social imaging company would generate $5.6 billion in quarterly revenues. The company would see quarterly upside of up to $5.0 billion from the prime region alone.
A big key is that Facebook generates $4.22 per user from the RoW region. The social media giant produces 162% more revenue from their least-monetized region than Pinterest monetizes the global user base.
The upside revenue potential is massive for a company with annual sales of only $3 billion. The non-holiday quarterly revenue targets aren't anywhere close to $1 billion, providing a prime example of the opportunity for Pinterest ahead.
Social commerce is supposed to provide a huge monetization boost, with users having a clear intent to purchase items and Pinterest actively working to directly connect users with the exact or similar item to purchase directly off the site. The holy grail of advertising has always been that user traffic on Pinterest is more valuable than the nondescript traffic on Facebook, where users don't even have an intent to purchase items and see ads as invasive.
RBC slapped a $46 price target on the stock last month while only forecasting 15% sales growth in 2024. While sales estimates continue to rise, the numbers still appear exceptionally low as a 15% hurdle doesn't appear large considering user growth now covers over half the targeted growth.
Besides, analysts are only forecasting revenues reaching $4.2 billion in 2025. Pinterest will need to grow far in excess of a 15% clip in order to close the monetization gap with Facebook.
Up at nearly $38, the stock isn't cheap anymore. Pinterest trades at ~7x 2024 sales targets, leaving investors with stock returns likely in line with sales growth going forward.
If the social imaging company can generate 20%+ growth rates, investors will see solid returns. Remember, though, the stock has a history of selling off, providing a better entry point, suggesting investors should keep some capital available to load up on Pinterest during dips in the market.
Takeaway
The key investor takeaway is that Pinterest is no longer a huge bargain after the end of 2023 rally, but the stock still offers some solid value. The social imaging company is poised to report consistent user growth going forward after finally topping the Covid peak allowing for any ARPU upside to drive strong sales growth.
Investors should build a long-term position in Pinterest stock for growth, though one should keep some capital to load up on any future dips.
For further details see:
Pinterest: Record Year Ahead