To navigate these tricky market conditions, I will continue to be selective and look for stocks whose growth prospects have not been fully appreciated by the market, suggests Hilary Kramer, growth stock expert and editor of GameChangers.
I believe Pinterest Inc. (PINS) fits this criterion. The firm's stated mission is to “bring everyone the inspiration to create a life they love.” With over 459 million users worldwide, chances are high that many of you are “Pinners" and go to the site to learn how to make life more enjoyable.
Whether you are interested in chess lessons, new recipes or learning more about a philosophy or religion, there are saved visuals called “pins” on the website to help you find what you are looking for.
Management considers Pinterest to be a productivity tool that can help Pinners follow their dreams. This is accomplished primarily through visualization.
The website makes use of images and videos to express concepts that words alone cannot capture. There are now over a hundred million visual searches per months on Pinterest, and the company has invested heavily in computer vision to help Pinners get the most out of these searches.
In addition to visualization, Pinterest offers personalization tools for its users, with each user’s pins saved and organized in order for the system to get a better feel of a Pinner’s interest. The more pins a user saves, the more personalized the Pinner’s feed becomes.
Finally, the company attempts to offer a plan of action by linking each pin back to a useful source to help a user meet his or her goals.
The company also has a lot to offer advertisers. There are the 459 million users who conduct billions of searches a month, which can be targeted to specific interests.
This allows promoted and targeted ads to be part of the content, as opposed to a distraction from it, which is the case for a lot of internet advertising. The visuals come into play here as well, with the ads appearing in an aesthetically appealing environment.
In the company’s fourth-quarter earnings conference call, the company stated that toymaker Lego and high-end coffee maker Nespresso were two examples of companies that ran very successful Christmas campaigns on Pinterest based on data from Pinners’ searches.
Pinterest has enjoyed substantial growth in recent years, with revenues increasing from $472.8 million in 2017 to $1.69 billion in 2020. Helping to drive this growth was an increase in monthly average users from 216 million in the fourth quarter of 2019 to 459 million at the end of last year, making the platform more attractive for advertisers.
Most of the rise in user growth has occurred from outside of the United States, where the company has been successful in localizing content. Profitability has also steadily improved, with the company becoming free-cash-flow positive for the first time last year, with earnings per share (EPS) reaching $0.42.
This rapid growth will continue through at least the first quarter of this year, with the company moving toward revenue growth of at least 70%. At that point, revenue comparisons will become more difficult, as the company will begin lapping quarters that benefited from the pandemic. Thus, analysts are projecting revenue growth of 48% for the entire year.
While growth will slow as comparisons become more difficult, I believe that PINS' growth will be resilient. It still has plenty of room to grow its American user base of 98 million.
Meanwhile, even though international users make up 78% of the user base, those users only account for 17% of total revenue. So, the company has a long way to go in monetizing this base.
In addition, the company has only begun to add shopping as another experience on its site, and some early success there has given good reason to believe that this will be another driver of future growth.
In conclusion, I believe that the concerns over more difficult comparisons are overstated, and Pinterest is more than a pandemic fad. While the stock is not cheap at close to 100X 2021 EPS estimates of $0.85, many companies that are growing as fast as PINS are selling for even higher multiples.
As we go through the year, and the market realizes that growth will remain rapid, I anticipate that stock will reach new highs. Buy PINS under $84. My target is $100.
