Why is Pinterest (PINS) up 4.1% since its last earnings report?

It’s been a month since the last earnings report for Pinterest (PINS). Shares rose about 4.1% in that time, underperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or is Pinterest headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to better understand the important catalysts.

Pinterest’s first quarter earnings exceeded estimates, revenues increased y/y

Pinterest reported strong first-quarter 2024 earnings, with the bottom and top lines surpassing their respective Zacks Consensus Estimates. The San Francisco-based online content provider reported year-over-year revenue growth, driven by strong user growth across all regions.

The lower funnel suite of solutions, including deep mobile links, conversion and cleanroom APIs, and permalinks, delivers consistent ROI for advertisers. Increasing investment in AI-integrated tools has improved the relevance and ease of shopping across the platform. Developing a third-party advertising ecosystem to increase monetization also supports revenues.

Net income

On a GAAP basis, the company reported a net loss of $24.8 million, or a loss of 4 cents per share, compared with a net loss of $208.6 million, or 31 cents per share, in the year-ago quarter. Improved financial results and lower operating costs led to a smaller loss in the quarter.

Non-GAAP net income was $139.5 million, or 20 cents per share, compared with $57.7 million, or 8 cents per share, in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 6 cents.

Revenue

Net sales increased to $740 million for the quarter, up from $603 million in the prior-year quarter. The top line surpassed the Zacks Consensus Estimate of $700 million. Pinterest reported a 12% year-over-year increase in global monthly active users (MAU) to 518 million, an all-time high.

MAU’s healthy growth is the combined result of a series of initiatives focused on personalization, increasing shopping and action opportunities, and creating a positive alternative to other social media platforms. The company continues to invest in artificial intelligence to generate highly relevant content across multi-session commercial user journeys.

It is very popular among Generation Z users, who constitute over 40% of users and are one of the fastest growing demographic groups on the platform. In addition to various ad formats and measurement tools, the company is introducing AI-powered automation to support retailers and advertisers by increasing conversions by leveraging users’ commercial intent.

The company has witnessed solid adoption of bottom funnel formats and tools. The Direct Link product, which takes users to the advertiser’s website with one click, is becoming more and more popular among advertisers. 97% of bottom funnel revenue came from direct links.

In addition to improving lower funnel solutions, the company is also seeing increasing use of its measurement tools. Pinterest’s privacy-focused measurement tools provide advertisers with visibility into conversions and provide relevant information to optimize their campaign strategies for specific goals. Ad impressions, both organic and paid, increased 38% in the first quarter.

The company is also developing its ecosystem of external partners. The company works with Amazon Ads in the United States and Google Ads Manager in non-monetized international markets. Third-party ad formats contributed positively to revenue this quarter.

The United States and Canada generated revenue of $592 million, up 22% year-over-year. Net sales exceeded our revenue estimate of $539.8 million. Solid momentum in retail and emerging industries, including financial services and technology, supported net sales.

European revenues were $118 million, up 27% from $93 million in the year-ago quarter. The top line fell short of our estimate of $124.6 million. Healthy traction in retail and CPG (Consumer Packaged Goods) has delivered significant revenue growth in this region.

Net sales for the rest of the world increased to $30 million from $24 million reported in the prior-year quarter, missing our revenue estimate of $34.4 million.

MAU from the United States and Canada was 98 million, up 3% year-over-year. The quarterly number exceeded our estimate of 97 million. In the rest of the world, MAUs were 279 million, up 16% from 240 million in the year-ago quarter. It missed our estimate of 288.2 million. MAU from Europe increased to 140 million from 128 million in the year-ago quarter and was below our estimate of 142.7 million.

In March, average global revenue per user (ARPU) was $1.46, compared to $1.32 in the same quarter last year. ARPU in Europe increased 17% year over year to 86 cents, while in the United States and Canada it increased 19% to $6.05. ARPU from abroad increased by 8% year-on-year to 11 cents.

Other details

Adjusted EBITDA for the first quarter of 2024 was $112.9 million, up from $27 million in the prior-year quarter. We owe this improvement primarily to disciplined cost management and solid revenue growth.

Total costs and expenses were $794.4 million, compared to $846.3 million in the year-ago quarter. On a GAAP basis, research and development expenses increased to $280.3 million from $266.3 million. Administrative expenses fell to $106.7 million from $207.9 million a year earlier.

Cash flow and liquidity

In the first quarter of 2024, the company generated $356.1 million of cash from operations, compared to $183.5 million in the prior-year period. As of March 31, 2024, Pinterest had cash and cash equivalents of $1.63 billion, including operating lease obligations of $154.3 million.

Perspectives

For Q2 2024, Pinterest expects revenue in the range of $835 million to $850 million, representing 18% to 20% year-over-year growth. Non-GAAP operating expenses are forecast at $490-505 million, suggesting 11-15% year-over-year growth.

How have estimates changed since then?

Investors have witnessed an upward trend in estimate revisions over the last month.

As a result of these changes, the consensus estimate moved by 66.67%.

VGM results

Currently, Pinterest has a great Growth Score of A, although it lags well behind its Momentum Score of C. However, the stock is rated F on the value side, putting it in the fifth quintile of this investing strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for the stock are trending upwards, and the scale of these revisions looks promising. Notably, Pinterest has a Zacks Rank of #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Pinterest is part of the Zacks Internet – Software industry. Another stock in the same industry, Meta Platforms (META), has gained 8% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Meta Platforms reported revenue of $36.46 billion, representing a year-over-year change of +27.3%. EPS of $4.71 in the same period compared to $2.64 a year ago.

Meta Platforms is expected to report earnings per share of $4.67 for the current quarter, which would represent a year-over-year change of +44.6%. Over the past 30 days, the Zacks Consensus Estimate has moved +0.2%.

The overall direction and magnitude of estimate revisions translates into a Zacks Rank of #3 (Hold) for the meta platforms. The stock also has a VGM Rating of B.

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