2023-10-31 10:10:00 ET
Summary
- Pinterest, Inc. reported record Monthly Average Users while smashing Q3 2023 targets.
- The company is generating substantial leverage leading to strong cash flows.
- The stock is cheap at only ~20x updated EPS targets for 2024, while the social commerce opportunity is still only in the early stages.
While other social media stocks fell following Q3 '23 results, Pinterest, Inc. ( PINS ) is soaring after reporting good quarterly numbers . The social imaging company still isn't seeing the big benefits from social commerce, but Pinterest is definitely back in growth mode. My investment thesis is ultra Bullish on the stock following the recent dip back to the mid-$20s.
Finviz
Record Users
Pinterest reported Q3 '23 monthly active users (MAUs) soared to a record 482 million. The user growth is definitely skewed towards the Rest of the World region with low monetization, where users grew 12% to 258 million, up 12 million sequentially.
Regardless, Pinterest still finally topped the peak MAUs of 478 million back in Q1 '21. The social imaging site has now doubled users since the start of 2018 in a more relevant view of how the business is doing when ignoring the volatile Covid period.
The user growth is helping the company grow revenues again with a big Q3 '23 beat as follows:
Revenues grew nearly 12% in the quarter to $763 million and Pinterest appears firmly back in growth mode backed by consistent user growth now. The shift in the geographical region of users alters the ARPU (average revenue per user) view, but the company still grew Global ARPU by 3%.
The company grew crucial ARPU in Europe by 26% to reach $0.91 in the quarter. The biggest problem impacting overall ARPU is the lack of monetization of all the new users in the Rest of the World at only $0.12 in the quarter. The U.S. and Canada grew at 5% YoY in Q3, though an investor would like to see the social commerce concept booster key ARPUs by far more.
While all of the focus has generally been on the top-line growth and MAUs, Pinterest has made substantial progress in making the company far more profitable. During Q3, adjusted EBITDA jumped 139% to $185 million for 24% margins and net income soared 153% to $193 million.
A prime example is that sales and marketing expenses were down YoY by ~$4 million to only $226 million. Along with revenues growing 12% YoY, these costs slumped 5 percentage points YoY to only 26% of revenues.
Pinterest further guided to Q4 '23 revenues up 11% to 13%, with non-GAAP operating expenses down 9% to 13% from last Q4. The company is generating substantial leverage anytime revenues can rise while expenses are falling.
Not Priced For Growth
The stock jumped to $28.50 in after-hours trading. Pinterest only has a market cap of $19.6 billion with an enterprise value of $17.3 billion due to the large cash balance of $2.3 billion.
Not only is the stock cheap here, but the company is also now generating consistently strong cash flows. Pinterest has generated $355 million in positive cash flows from operations YTD, with only $4 million in equipment purchases.
The company can now actually be valued based on earnings, with the consensus analyst target of $1.19 per share for 2024. This EPS number should rise based on the strong Q3 and guidance for Q4, placing Pinterest at only around 20x updated EPS targets.
The consensus analyst targets have Pinterest growing EPS at a ~30% annual clip for the next few years. A stock with these growth rates typically trades at a higher multiple than one just above the market multiple.
Pinterest bought $500 million worth of stock this year, and additional purchases would appear prudent with all of the cash and the company now solidly cash flow positive. The company will ultimately boost cash flows far above the current levels, providing the ability to repurchase more shares without even reducing the cash balances. As an example, Pinterest produced $753 million in operating cash flows back in 2021.
Takeaway
The key investor takeaway is that Pinterest is solidly back in growth mode with user growth leading the way. The company still isn't producing the social commerce ARPU boost expected from the crucial US and Canada region, but the stock is cheap while management is still working to build the concept into a powerhouse.
Investors should have a very Happy Halloween owning Pinterest.
For further details see:
Pinterest: Spooktacular Quarter