Bottom Line

Pinterest (NYSE: PINS) committed the cardinal sin of young technology companies, never stop growing.

Tech investors are usually willing to overlook almost anything, as long as your top line is traveling at mach speed.

This explains why Pinterest stock was down 20% after hours due to revenue that came in only 1% lower than street estimates.

For analysts and investors a miss on growth expectations this quarter casts doubt on their entire forward looking financial model.


They are likely asking, if Pinterest is growing slower than they expected, does this mean growth needs to be adjusted down across the board?

The problem with Pinterest is it already trades at a premium multiple to peers like Facebook, Twitter and Snap, but makes less per user than all of these platforms.

The only saving grace is that the company is still growing faster than the rest, but with earnings throwing cold water on growth, the valuation is coming down in line with other peers.

Company 2020 P/S Revenue Growth Rate (Avg Rev Per User)
Snap 9.0x 36% $1.13
Pinterest 7.2x 36% $0.87
Facebook 6.4x 22% $7.21
Twitter 5.8x 15% $2.03

Ever since the IPO, we could never justify a stock price higher than $16/sh, even if we assume Pinterest becomes more profitable than all of its competitors, except for Facebook.

Until we see hard evidence Pinterest is becoming the second most profitable social platform, the current stock price around $20 is simply too high. We would be buying Pinterest hand over foot at any price below $10 and would sell all day at $30/sh or higher.

Our handy visual guide below will help you make buy and sell decisions if you choose to invest in Pinterest over the long term.

Grizzle Guide to Buying or Selling Pinterest Stock

Source: Grizzle Estimates, SEDAR

Q3 Earnings Summary

  • Adjusted EBITDA Earnings: $4 million
  • Revenue: $280 million
  • Average revenue per user: $0.90

For the most recent quarter, Pinterest reported an adjusted EBITDA of $4 million on revenues of $280 million. That translated into per-share earnings of $0.01, excluding some items. Analysts were calling for a net loss of $23 million on revenue of $282 million.

The company managed to grow its monthly active users by 28% year-over-year to 322 million. Double-digit growth was reported in “nearly all international countries,” Todd Morgenfeld, Pinterest CFO, said in a statement.

He added:

“We are thrilled to serve Pinterest ads in 28 markets currently, compared to seven at the end of 2018. Pinterest also realized adjusted EBITDA profitability in Q3.”Chairman Mike Crapo (R-ID)

Pinterest issued positive guidance for fiscal 2019, upping its total revenue and earnings estimations.

The company now expects to generate between $1.1 billion and $1.115 billion in revenues for the full year, higher than the $1.095 billion to $1.115 billion range projected earlier in the year. Full-year losses are expected to range between $10 million and $30 million, better than the $25 million to $50 million range it expected to lose previously. At this rate, Pinterest expects to become a profitable company by 2021.

 

Post-IPO Valuation Mixed

Like other technology IPOs, Pinterest had a strong debut as a publicly-traded company. On its first day of trading back in April, the company surged 25% to close at $23.75. While PINS is trading slightly higher today, the interim six-month period has been rocky. The stock peaked at $36.83 during the summer before plunging all the way back down to the mid-$20 range over the next two months.

On Thursday, the stock closed at $25.11, down 3.1%. At current values, PINS stock has a total market capitalization of $13.8 billion, but is on pace for a huge decline when markets reopen on Friday.

Despite volatility in its underlying stock, Pinterest has posted decent results recently. The San Francisco-based company missed slightly on the top line but grew users faster than Wall Street expected. More importantly, international sales have increased, a move that should help the company attract higher ad revenue.

 

Disclaimer: Author holds no investment position in Pinterest at the time of writing.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.