Although big tech companies have done pretty well over the past three months, there have been a few notable exceptions. Social media giant Pinterest (NYSE: PINS) ended up crashing on Friday after the company reported an alarmingly disappointing second quarter. Although the company met its already lofty financial expectations, the main worry seemed to be from the decline in users. For this reason, most Wall Street analysts covering the stock ended up downgrading Pinterest, which only further pushed prices downwards.
In terms of the good news, revenues managed to more than double from last year. According to the Q2 report, Pinterest reported quarterly revenues of $613.2 million, more than 125% higher from 12 months ago. Net income managed to finally tip into the positive as well, hitting $69.4 million as opposed to the $100.1 million net loss seen in Q2 2020.
While all of this is excellent news by itself, investors are worried about the company’s declining user base. Monthly average users fell from the expected 485 million to just 454 million. Going forward, Pinterest’s management expects Q3 revenues to grow by another 40%, but in the long-term, concerned shareholders wonder how Pinterest can continue growing if its user base continues to fall.
In response, most analysts covering the stock expressed their concerns, with most having downgraded the company following the news. The most vocal of which were analysts from Wells Fargo, J.P. Morgan, and Evercore ISI, all of whom downgraded the stock and cut their price targets.
“Despite MAU engagement trends coming back to reality from pandemic driven levels, we view PINS shares as attractive given continued ARPU expansion driven by advertiser demand amid easing COVID restrictions,” Wells Fargo analysts wrote. “This is likely a temporary negative inflection in PINS’ lead metric, but it is a negative inflection, and the company appears to have shed many of the new users it gained during the COVID Crisis. There is now something of an open question as to whether PINS is experiencing maturation risk in its lead market, the U.S,” Evercore ISI analysts said in a note to investors Friday.
Overall, shares of Pinterest ended up tumbling more than 18% on Friday in response to the news. Like most social-media stocks, Pinterest has done exceptionally well over the past year, gaining more than 133%.
It also helps that Pinterest has avoided much of the antitrust attention that larger social media tech companies have garnered. Not being the subject of a federal case or possible antitrust break-ups makes Pinterest more appealing amongst some investors. This includes Cathie Wood’s ARK Invest, who bought up more shares of Pinterest following the dip in the expectation that things will look up the the company in the future.
Pinterest Company Profile
Pinterest is an online product and idea discovery platform that helps users gather ideas on everything from recipes to cook to destinations to travel to. Founded in 2010, the platform consists of a largely female audience, at roughly two thirds of its more than 365 million monthly active users. The company generates revenue by selling digital ads and is now rolling out more in-platform e-commerce features. – Warrior Trading News
