Pinterest: A Platform for "Visual Discovery"

08/27/2019 5:00 am EST


James Kelleher

Director of Research & Senior Analyst: Technology, Argus Research Corporation

Pinterest Inc. (PINS) is a social media platform for visual discovery. The platform allows contributors (“pinners”) to share visual images (“pins”), as well as save and organize ideas and recommendations into collections, explains Jim Kelleher, an analyst with independent research firm, Argus Research.

Since its launch in 2010, Pinterest has grown into a community of more than 300 million active users and become a key resource for advertisers targeting specific demographics.

The company posted exceptional sales growth in 2017 and 2018 and is off to a strong start in 2019, with first-half growth of 58%. We look for revenue growth to continue at a nearly similar pace, driven by strong growth in average revenue per user (ARPU).

Other metrics are also growing at impressive rates. These include international revenue, which grew 199% year-over-year in 2Q19; global monthly active users, which increased 30%; and global adjusted EBITDA, which rose 18%.

Pinterest’s reach is broad, with a U.S. audience that includes 43% of all internet users and 80% of all female internet users ages 18-64 with children (source: ComScore).

International expansion will be a lengthy process. Although overseas users are much more numerous than U.S.-based users, most advertising revenue comes from the U.S. However, view this disparity as an indication of the company’s opportunity in the International segment.

On valuation, the stock has risen 75% from the IPO price and could face selling pressure when the post-IPO lockup period expires in October.

As such, temporary fluctuations in the share price around this period are likely to reflect stock sales by employees rather than underlying business challenges. We believe that any pullback in the share price as a result of these sales would offer a favorable buying opportunity.

The company continues to report losses, but narrowed its full-year loss significantly in 2018. Looking ahead, we expect Pinterest to achieve full-year profitability within the next two years while maintaining strong revenue growth.

We note that the stock could face selling pressure when the post-IPO lockup period expires in October. We are raising our rating to "buy" with a 12-month target price of $40.

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