PINS – Profitable Growth

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In the past few months, we analyzed most of the top social media searches by financial pros: Twitter, Facebook, and the ever popular SnapChat.

Yet, we felt it was high time to include #2 in our list because it happens to be one of the more profitable companies in the industry.

You see, many blame social media apps like Twitter, YouTube, TikTok, and Facebook for driving division in America.   

And it’s gotten to the point that some parents think these apps are toxic to their children’s development and mental health. There are even some studies that point to social media for mass school shootings. 

However, not all social media apps tear people apart. Some bring folks together and shed positivity. 

One of those apps is Pinterest (PINS), a stock we covered in April, but with so many new developments, it’s a good time for an update. 

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Pinterest’s Business

Pinterest (PINS) operates as a visual inspiration platform. More than 400 million monthly active users worldwide use the platform. And people have saved more than 300 billion Pins. 

The company breaks down its revenues by region: U.S. and Canada, Europe, and the Rest of the World. 

While PINS generates most of its revenues from the U.S. and Canada, it has more monthly active users in Europe and the rest of the world. 

And while revenues improved in Q1 2022, monthly active users (MAU) dropped from 478 million to 433 million. 

That’s not a good sign. On June 28th, the firm announced Bill Ready would take over as CEO. His previous experience included President of Commerce at Google, COO at PayPal, and CEO at Venmo.  

On July 14, Elliot Management, one of the most prominent activist funds in the world, announced a 9% stake in PINS, making them the largest stakeholder. 

What exactly did they see? 

Financials

While shrinking MAUs is a concern, Pinterest boosted revenues consistently every year. For example, in 2018, it generated $755 million in revenue, and its current 12-month (TTM) is $2.67 billion. 

Furthermore, the firm went from having a net income of -$128.3 million in 2020 to a positive net income of %332 million (TTM). It made a giant leap from generating $28.8 million in cash from operations in 2020 to $752.9 million in 2021. 

PINS has total debt of $202.57 million. However, it is sitting on $2.68 billion in cash. Meanwhile, the company boasts a market cap north of $13.5 billion. 

The firm has a current ratio of 14.22x, which means it has ample liquidity and can handle all its short-term liabilities without any issues. 

Valuation

Compared to SNAP and TWTR, PINS has a better P/E ratio than both at 42.6x (TTM). Plus its Non-GAAP P/E ratio is 18.21x. Although that’s worse than the sector average, it’s not as bad as several of its social media peers.

Furthermore, PINS’ price-to-cash flow ratio (TTM) is significantly better than TWTR 78.8x, and SNAP 79.0x, at 19.5x. 

This is particularly important as other social media companies struggle to justify their ridiculous multiples.

PINS’ price-to-sales ratio is 4.95x which is similar to SNAP’s 4.92x and much better than TWTR at 5.61x. 

When it comes to making money, PINS outclasses TWTR and SNAP. 

PINS boasts a gross profit margin of 79.69%, which is better than TWTR’s 63.3%, and SNAP’s 60.13%

And it beats them in net income margin, EBITDA margin, and EBIT margin. 

PINS return on assets is 7.88%, which is better than TWTR’s 0.41%, and SNAP’s -5.98%

Furthermore, PINS is growing revenues faster than META and TWTR. And has experienced an EBITDA growth (YoY) of 312.87% 

All this shows us that the company is doing a better job monetizing its platform and should continue doing so with the addition of Bill Ready. 

Our Opinion – 7/10

Many of the “stay at home” stocks that thrived during the pandemic got slaughtered in 2022. PINS is no exception, with shares down more than 70% from its 52-week highs of $77.92. 

And while a drop in MAU numbers is a concern, the company is under new leadership. Plus one of the world’s best activist investors claimed a 9% stake in the company. 

We believe PINS is due for a bounce and think the stock will be trading higher from here 12-to-24 months from now.