Pinterest Q1 Earnings: Multiple Ways To Win (NYSE:PINS)

Pinterest Stock Surges After Reporting Q1 Earnings

Pinterest, Inc. (NYSE:PINS) is back in major growth mode as the company pushes through solid user growth while the monetization story remains the major catalyst. The social imaging stock has rightfully surged on the news. My investment thesis remains ultra-bullish on the stock as the record year unfolds as predicted.

User Growth Machine

As with any social media play, user growth is one of the best ways to drive growth. More users usually means more money whether via advertising or subscriptions.

In this case, Pinterest grew Q1’24 ad revenues with the following quarterly numbers:

The company grew MAUs by 12% year-over-year to 518 million. Pinterest took until this year to top the COVID peak back in Q1’21 and now the social imaging site is generating accelerating growth and has topped the prior peak by 40 million MAUs.

On the Q1’24 earnings call, the CEO discussed significant improvements to the site suggesting higher engagement going forward along with more ad formats for improving monetization. Pinterest has utilized next-gen AI to lean into focusing on content with a commercial intent vs. pure entertainment leading to higher engagement and helping the partnership with retailers on their shopping strategy.

Importantly, the company continues to see user engagement growing faster than the 12% user growth. Any platform is ultimately valued based on how many people use it on a daily basis as engagement levels are vastly different for a person using Pinterest an hour a day vs. someone for an hour a month. The daily user is worth up to 30x more than the monthly one counted the same in MAUs.

Pinterest continues to see growth in Shop Similar and Shop the Look features. The company suggests outbound clicks to advertisers, such as via Amazon.com, Inc. (AMZN) ads, more than doubled YoY.

As long as Pinterest is adding users in RoW, the ARPU metric is difficult to grow. For Q1’24, ARPU still grew 10% YoY to $1.46 despite the RoW users growing the fastest only monetizing at $0.11 per user.

These metrics are still miles below the numbers produced by Meta Platforms, Inc. (META) having hit an $11.20 ARPU during the March quarter per daily user. This number now includes a large amount of users outside of Facebook that aren’t monetized at a high rate.

PINS Stock – Valuation Question

Pinterest has jumped nearly 20% to $40 on the great quarterly report. The company guided to Q2’24 revenue of $835 to $850 million for up to 20% growth while the market cap has soared to $27 billion.

The management team has guided to sustainable high teens growth over the next few years. The monetization opportunity would suggest this possibility is legitimate with growth in direct links value capture and the emerging contribution from third-party demand partnerships.

The stock is a great long-term investment opportunity. Investors probably shouldn’t aggressively buy at higher valuations than the current 7x sales targets of 2024 sales of $3.7 billion, but Pinterest should ride the growth higher over time.

The market will increasingly start looking toward profit levels to value the stock. In Q1’24, Pinterest reported a GAAP loss of $25 million with an adjusted EBITDA of $113 million.

The normal valuation metric would be adjusted profit and neither of these numbers provides this metric. The ironic part is that non-GAAP net income was $140 million due to adjusted EBITDA, excluding $31 million in interest income plus some other true costs.

Pinterest reported an adjusted profit of $0.20 per share, up from only $0.08 last year. The consensus EPS estimates have earnings jumping to $0.27 in Q2.

The market targets the 2024 EPS increasing over 30% to $1.42 and hitting $1.74 in 2025. The stock is increasingly intriguing based on these earnings alone. Pinterest only trades at slightly above 20x the forward earnings and the company has small operating margins, as of now.

Pinterest produced $356 million in operating cash flows during Q1, up nearly 100% from last Q1. The company now has a cash balance of $2.8 billion and the cash flows provide the ability to invest in the future or start returning capital to shareholders.

Takeaway

The key investor takeaway is that Pinterest has returned to a strong growth story. The company has multiple ways to win via growing engagement and monetizing the existing engagement at a vastly higher rate via lower funnel direct links and third-party partnerships.

The stock will likely surge to new multi-year highs based on these numbers. Investors should’ve chased the stock, but Pinterest remains a solid value here at $40 and the opportunity exists for sustainable growth in the 20% range, leading to solid shareholder returns over time.