Pinterest is down 78% — Is it time to buy?

A sudden leadership change has made this question all the more relevant.

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Woman using Pintereset on an iPad.

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This article was originally published on All figures quoted in US dollars unless otherwise stated.

Pinterest (NYSE: PINS) has seen its stock fall by nearly 80% since hitting its peak in Feb. 2021. The stock surged to elevated levels amid COVID lockdowns and fiscal stimulus. But as users returned to their offline activities and inflation worsened, consumers -- and investors -- turned away from Pinterest. On top of that, investors have most recently had to contend with the resignation of co-founder and CEO Ben Silbermann.

However, monthly active user levels have begun to rise again, and given the much lower valuation for the social media stock, investors may want to take another look at this company.

The state of Pinterest

Pinterest may arguably be the site most geared to individual tastes. Instead of typical user profiles, users "pin" items based on their likes or passions. This information allows the company to generate revenue through "promoted pins" -- ads targeted specifically to users interested in a related product or service. Hence, instead of relying on demographics or psychographics, Pinterest focuses purely on individual tastes.

Also, its users typically have money to spend. About 45% of its U.S. users live in households earning $100,000 or more per year. This level of disposable income should be attractive to advertisers.

Its highest-spending users are in the U.S. and Canada, though it has heavily emphasized attracting non-U.S. users in recent years. Still, in the first quarter of 2022, U.S. and Canadian users contributed an average revenue per user (ARPU) of $4.98. This was well higher than Europe's ARPU of $0.72 or the rest of the world at just $0.08. Thus, challenges in North America will still affect revenue disproportionately.

The new leadership direction

Additionally, another cloud of uncertainty has appeared as co-founder Silbermann steps down as CEO. Silbermann announced his resignation on June 28, and Bill Ready, who headed the commerce, payments, and next billion users segment at Google, will take over as Silbermann becomes executive chairman.

The company wants to embrace e-commerce more directly, and Silbermann feels Ready will be a better CEO for such a transition. Ready has a background in payments, having previously served as the CEO of Braintree and Venmo. He also held various positions at PayPal, including Chief Operating Officer. Though leadership changes tend to bring added risk, his experience in commerce and fintech should enhance Pinterest's retailing and payments-related capabilities.

Why the focus on e-commerce should help

The emphasis on e-commerce should improve ARPU, a bright spot in the company's recent performance. In the first quarter, the company reported 433 million MAUs. While that was up from 431 million in the previous quarter, MAUs were down 9% year over year.

Still, users on the site became more valuable as global ARPU increased 28% year over year to $1.33. Revenue of $575 million was also up 18%, but this extends the company's trend of decelerating top-line growth, falling well short of the 78% growth reported in the prior-year period, and the 20% growth from the fourth quarter. On the bottom line, Pinterest's net loss shrank from $22 million last year to just $5 million last quarter.

But amid the tech sell-off, investors have focused on the slowing revenue growth and MAU stagnation. This has forced the stock down 50% year to date. Nonetheless, the price-to-sales (P/S) ratio has fallen to 4.6, just about its lowest level ever.

Should you consider Pinterest stock?

A low valuation and management's focus on monetizing the platform could motivate investors to buy Pinterest stock. But the MAU results in recent quarters are underwhelming.

Though any major leadership change will bring some uncertainty, Ready has a lot to offer with his experience in e-commerce and payments. Meanwhile, ARPU growth remains robust, and MAU levels do seem to have stabilized. Such conditions could create the foundation needed for Pinterest to inspire a recovery. 

This article was originally published on All figures quoted in US dollars unless otherwise stated.

Will Healy has positions in PayPal Holdings and Pinterest. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended PayPal Holdings and Pinterest. The Motley Fool Australia has recommended PayPal Holdings and Pinterest. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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