Pinterest Stock Down 16% – Time to Buy PINS Stock?

Pinterest stock is down 9% so far in July and it is diving almost 16% this morning following the release of the company’s financial results covering the second quarter of 2021 as the social media platform missed analysts’ estimates for its user growth.

During the three months ended on June 30, Pinterest managed to grow its global monthly active users (MAUs) only 9% to 454 million, missing the consensus estimate for the quarter by 28 million amid “engagement headwinds”.

The company further stated that its MAUs declined 7% during July while it abstained from providing user growth guidance for the third quarter citing a “lack of visibility” for certain key engagement drivers.

Despite these negative comments about MAU growth, the firm managed to nearly triple its global revenues as they advanced from $272 million to $613 million, primarily aided by a significant jump in its international revenues during the quarter as they came in 227% higher at $133 million while US top-line results more than doubled.

This top-line figure came in above analysts’ estimates of $562 million for the quarter yet the market seems to have been disappointed by the downbeat tone of the management in regards to future user growth.

Meanwhile, the company swung to profitability during the second quarter of this year, moving from a $100.7 million loss reported during the same period last year to $69.4 million during this second portion of the semester.

Could this seemingly exaggerated reaction from market participants open an opportunity to buy Pinterest’s stock at a bargain price? The following article takes a closer look at the business fundamentals to possibly answer that question.

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Pinterest Stock – Technical Analysis

Despite the sharp drop this morning, the stock price is still not tagging the lower bound of the pattern drawn in the chart above. The price action seems to have formed a potentially bullish pennant pattern that resulted from the consolidation of the price after the sharp uptrend seen since last year.

A break above the pennant could lead to the continuation of the former uptrend while a break below would indicate that sentiment has possibly shifted and that could lead to the beginning of a fresh bearish cycle for the stock.

Interestingly, yesterday’s volume was particularly high only hours before the release of the firm’s quarterly results, possibly as market participants anticipated a disappointing report after seeing those of other social media platforms including Facebook (FB).

Meanwhile, volumes are particularly elevated this morning as well, with an estimated number of 3.6 million shares exchanging hands during extended hours based on data from MarketWatch. This volume accounts for almost half the stock’s 10-day average which is fairly high for off-session action.

For now, the outlook for the stock is bearish and this meltdown could end up tagging the lower bound of the pennant formation for a total downside risk of 24% from yesterday’s closing price of $72.04 per share.

Pinterest Stock – Fundamental Analysis

Pinterest has been managing to grow its top-line results at an accelerated pace in the past few years but revenue growth rates have slowed down from 60% back in 2018 to 48% last year after they landed at $1.69 billion.

For the third quarter of the year, the company is expecting to see sales surging by 40% while analysts are expecting to see revenues landing at $2.60 billion for a 52.7% year-on-year jump.

Moving forward, the consensus estimate points to further deceleration in the firm’s revenue growth rates, with forecasted growth being expected to land within the 30% to 35% range for 2022 and 2023.

The fact that most of the deceleration seen in user growth came from the United States is possibly causing this wave of negative sentiment, as most of the firm’s revenues come from this region.

That said, it is worth noting that Pinterest has managed to consistently grow its average revenues per user globally in the past few years, moving from $0.83 back in the fourth quarter of 2017 to $1.32 this past quarter.

As per its profitability, the company has progressively improved its gross profit margin from 68% back in 2018 to 73.5% last year and 79% during this last quarter. Meanwhile, its EBITDA margins have been moving closer to positive territory while they landed at 12.7% during this second quarter of the year.

It seems that Pinterest is becoming a more mature business that might already be reaching top altitude and that is a source of concern for market participants as stalled growth moving forward could lead to a correction in the stock price based on a more stable outlook for the firm.

For now, at $59.5 per share, Pinterest stock is trading at 46 times its forecasted non-GAAP earnings per share for 2022. This multiple seems fairly attractive based on the firm’s forecasted earnings growth of 45% on average for the following two to three years which means that this might be a dip worth buying.

Moreover, it is important to note that Pinterest has almost no debt while it had $2.1 million in cash and equivalents by the end of the second quarter.

Including today’s downtick, the stock would be posting a 9.5% year-to-date loss while trading one-third below its 52-week high. For now, even though catching a falling knife is often a bad idea, investors seeking to buy PINS may start to draft a plan to progressively build a position if the stock continues to dive in the following days.

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