Pinterest, Inc. (PINS) in San Francisco delivers a visual discovery engine in the United States and internationally. The company’s engine allows people to find inspiration for their lives, including recipes, style, and home inspiration, DIY, and others. The image-based search engine gained popularity during the pandemic last year. However, the post-pandemic period has not been as generous to the company. PINS reported a decreasing monthly active user base for the previous two quarters because people started to re-engage with outdoor activities. Furthermore, its advertising business took a hit as advertisers’ willingness to spend on PINS’ services fluctuated due to several pandemic-related factors. The company expects its user engagement, growth, and retention rates to remain low as the nation gradually emerges from pandemic-related restrictions.

Earlier, PINS said Apple’s Inc. (AAPL) iOS privacy changes had affected its “ability to track user actions off our platform and connect their interactions with on-platform advertising.” Also U.S. payments giant PayPal’s cancellation of its acquisition of PINS caused its share price to decline more than 12% on the news. PINS delivered better-than-expected revenue and earnings, but its monthly user base decline in its last reported quarter made investors anxious. The company’s Monthly Active Users (MAU) declined 10% in the United States, while its global MAU increased only marginally. The stock plunged in price following the quarterly release.

The stock has slumped 49% over the past year and 46% year-to-date to close its last trading session at $36.05. Over the past month, PINS shares have declined 22.5% in price. The stock hit a 52-week low of $34.07 in its last trading session and is currently trading below its 50-day and 200-day moving average, indicating an overall downtrend.

Here is what could shape PINS’ performance in the near term:

Stretched Valuation

In terms of forward P/E, PINS is currently trading at 75.50x, which is 291.7% higher than the 19.28x industry average. Also, its 32.43 forward non-GAAP PEG ratio is 2,337.3% higher than the 1.33 industry average. PINS’ 9.08x forward Price/Sales is 436.2% higher than the 1.69x industry average.

Higher-Than-Industry Profit Margins

PINS’ 78.78% gross profit margin is 52.5% higher than the 51.66% industry average/Also, its 14.34% net income margin is 150.1% higher than the 5.73% industry average.

PINS’ 5.09%, 11.09%, and 8.85% respective ROE, ROA, and ROTC compare with the 9.36%, 3.00%, and 4.29% industry averages.

Solid Financial Growth

PINS’ revenues increased 43% year-over-year to $632.93 million in its fiscal third quarter, ended September 30. Its non-GAAP net income increased 119% year-over-year to $190.55 million, while its adjusted EBITDA grew 117% from its year-ago value to $201.47 million. The company’s adjusted EPS was  $0.28, versus the $0.23 consensus estimate, reflecting a 21.7% earnings surprise.

Analysts expect its revenue to increase 17% in the current quarter, 18.4% in the next quarter, and 51.1% in the current year. In addition, its EPS is expected to grow 7% in the current  quarter, 27.3% in the next quarter, and 161.9% in the current year.

POWR Ratings Reflect Uncertainty

PINS has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Stability, consistent with its 1.14 beta. 

PINS has a C grade for Sentiment. This is justified because  out of the 18 Wall Street analysts that rated the stock, 13 have rated it Hold.

Of the 77 stocks in the Internet industry, PINS is ranked #27.

Beyond what I have stated above, one  can also view PINS’ grades for Value, Growth, Momentum, and Quality here.

View the top-rated stocks in the Internet industry here.

Bottom Line

The company invests significantly in content, Pinner experience, and advertiser success to drive long-term growth. The company expects its operating expenses to grow in the current quarter. PINS’ declining user base due to more outdoor engagement and the recent headwinds related to AAPL’s iOS policy changes and other pandemic-related issues are making its near-term prospects uncertain. Moreover, the stock looks overvalued at its current price level. Also, considering its high beta, we think it could be wise to wait for a better entry point in the stock.

How Pinterest, Inc. (PINS) Does Stack Up Against its Peers?

While PINS has an overall POWR Rating of C, one might want to consider looking at its industry peers, Travelzoo (TZOO), Yelp Inc. (YELP), and Alphabet Inc. (GOOGL), which have a B (Buy) rating.

PINS shares were trading at $35.43 per share on Thursday morning, down $0.62 (-1.72%). Year-to-date, PINS has declined -46.24%, versus a 26.91% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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