Buy, Sell, Or Hold PINS Stock At $40?

Pinterest’s Q4 Performance: A Mixed Bag with a Silver Lining

Pinterest (NYSE: PINS) recently unveiled its Q4 earnings report, delivering a mixed performance that left analysts and investors with plenty to unpack. While the company’s revenue of $1.15 billion slightly exceeded Wall Street estimates of $1.14 billion, its adjusted earnings per share (EPS) of $0.56 fell short of the expected $0.64. This miss on earnings could have spelled trouble, but Pinterest’s stock defied expectations by surging 19% on Friday, February 7. The rally was fueled by strong user growth and an optimistic outlook for the future. However, this isn’t the only stock making headlines. Separately, after a lackluster outlook, investors are questioning whether Bristol Myers Squibb (BMY) stock, currently trading at $57, is worth picking up.

Pinterest’s Q4 revenue growth of 18% year-over-year (y-o-y) highlights the company’s ability to expand its top line, with Europe leading the charge at 21% growth, followed by the U.S. and Canada at 16%. This growth was driven by an increase in monthly active users (MAUs) and average revenue per user (ARPU). MAUs rose 11% to 553 million, while ARPU climbed 6% to $2.12, both exceeding street expectations. The company also saw a significant improvement in profitability, with its adjusted EBITDA margin expanding by 300 basis points (bps) to 41%. Despite these positives, Pinterest’s earnings per share of $0.56 were only marginally better than the $0.53 reported in the prior-year quarter.

Pinterest’s Strong User Growth and Profitability

One of the standout highlights of Pinterest’s Q4 earnings was its strong user growth. The platform’s MAUs reached 553 million, a 11% increase compared to the previous year. This growth was complemented by a 6% rise in ARPU, which now stands at $2.12. These metrics not only surpassed analyst expectations but also underscored Pinterest’s ability to attract and monetize its user base effectively. The company’s focus on enhancing user engagement and delivering value to its advertisers seems to be paying off, as evidenced by the robust growth in both user numbers and revenue per user.

In addition to its top-line growth, Pinterest also made significant strides in improving its profitability. The company’s adjusted EBITDA margin expanded by 300 bps to 41%, reflecting better cost management and operational efficiency. This improvement in profitability is a positive sign for investors, as it indicates that Pinterest is not only growing its revenue but also becoming more efficient in converting that revenue into profits. The company’s ability to maintain healthy margins while investing in growth initiatives is a testament to its disciplined approach to financial management.

Pinterest’s Stock Performance: Volatility and Underperformance

Despite the strong Q4 performance and upbeat outlook, Pinterest’s stock has had a rocky ride over the past year. The company’s shares have returned 8% since the beginning of 2024, significantly underperforming the S&P 500 index, which has gained 26% over the same period. This underperformance can be attributed to increased operational costs, which have weighed on the company’s profitability and, in turn, its share price. The stock’s volatility has also been a concern for investors, as Pinterest’s annual returns have been far more erratic compared to the broader market.

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Pinterest’s Q1 Outlook and Future Prospects

Looking ahead, Pinterest has provided a promising outlook for Q1. The company guided for $845 million in revenue and $163 million in adjusted EBITDA at the midpoint of its range. These numbers are notably better than the consensus estimates of $834 million in revenue and $139 million in adjusted EBITDA. The upbeat guidance suggests that Pinterest is confident in its ability to continue growing its user base and increasing its revenue in the coming quarter. This positive outlook has likely contributed to the recent surge in the company’s stock price, as investors are optimistic about Pinterest’s future prospects.

Despite the challenges posed by increased operational costs, Pinterest’s strong user growth, rising ARPU, and margin expansion provide a solid foundation for future growth. The company’s ability to attract and retain users, coupled with its focus on delivering value to advertisers, positions it well in the competitive digital advertising space. Additionally, Pinterest’s emphasis on innovation and user engagement should help it maintain its momentum in the quarters to come.

Valuation and Peer Comparisons

Pinterest’s stock is currently trading at $40, with a trailing price-to-sales (P/S) ratio of 7.7x, slightly above its average P/S ratio of 7.3x over the past four years. While the stock has seen recent gains, there is still room for further upside, driven by the company’s improving fundamentals. The combination of robust user growth, rising ARPU, and margin expansion justifies a premium to Pinterest’s historical valuation multiple. Investors will be closely watching the company’s performance in the coming quarters to see if it can build on this momentum.

In addition to Pinterest, investors may also want to keep an eye on how the company’s peers are performing across key metrics. Conducting peer comparisons can provide valuable insights into the relative strengths and weaknesses of different companies within the industry. For example, investors may want to compare Pinterest’s revenue growth, profitability, and user engagement metrics with those of its competitors to better assess its position in the market.

Conclusion: Picking the Right Investments in a Volatile Market

As the broader macroeconomic environment remains uncertain, with ongoing discussions about rate cuts and trade wars, investors are left wondering whether Pinterest’s stock will outperform the S&P 500 or struggle to keep up. While Pinterest’s recent performance has been encouraging, its stock’s volatility over the past year serves as a reminder of the risks associated with investing in individual stocks.

For those seeking a more stable investment option, the Trefis High-Quality Portfolio offers a attractive solution. By focusing on high-quality stocks with strong fundamentals, this portfolio has consistently outperformed the S&P 500 while minimizing volatility. This approach not only reduces the risk associated with individual stock investments but also provides exposure to a diversified range of companies, making it an excellent choice for investors looking for a smoother ride with upside potential.

Ultimately, while Pinterest’s stock appears to have more room for growth, investors should carefully consider their risk tolerance and investment goals before making any decisions. Whether opting for Pinterest stock or exploring alternative investment options, staying informed and conducting thorough research will always be key to making smart investment choices.