generic Pinterest Stock Has an Even Brighter Future Than You May Have Thought
In my last article about Pinterest (NYSE:PINS) stock in early March, I suggested investors were giving PINS stock the cold shoulder despite the fact I believe its future is bright.
Source: Nopparat Khokthong / Shutterstock.com
Scoff if you’d like.
However, the social media platform continues making moves that will turn Pinterest into more than just a visual experience but an e-commerce powerhouse.
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Ok, maybe not a powerhouse just yet, but a business that’s willing to do what it takes to turn its Pinners into shoppers.
Pinterest had 431 million monthly active users (MAUs) at the end of December. Globally, its average revenue per user (ARPU) in 2021 was $5.79, 36% higher than a year earlier.
Rather than focusing on the potential of those 431 million users, investors are worrying that its business model is experiencing slower growth.
I’m here to tell you why that’s shortsighted.
Your Shop and PINS Stock
Pinterest recently held its second annual advertiser summit, Pinterest Presents. The event allowed it to highlight some of the new shopping features enabling Pinners to buy items directly on the platform. These items bring it closer to becoming a full-service e-commerce platform.
That’s a good thing if you own PINS stock or consider buying in the low $20s.
The four product launches at its advertising summit include Your Shop, Checkout, Shopping API, and Pinterest Trends Tool. Here’s a quick rundown of each.
Your Shop: Currently in beta testing in the U.S., Your Shop gives each Pinner their own customized shopping page. The page is customized using an algorithm that caters to their taste and style. It’s set to launch across the U.S. later in 2022. An international rollout should follow in 2022.
Checkout: The company is beta testing through U.S. Shopify (NYSE:SHOP) merchants. The feature allows users to checkout while on the Pinterest platform.
Shopping API: The API will allow merchants of all sizes to sell directly on Pinterest with features such as uploading catalogs, updating pricing, inventory availability, etc. All without users having to leave the platform.
Pinterest Trends Tool: Starting with the U.S., UK, and Canada and expanding to other countries in the future, the new features added to the trends tool will provide creators and merchants with additional information to make their Pinterest efforts more profitable. Information includes real-time search data, more trend types, more audience tools, and personalized trend recommendations.
“We’re doubling down on products and features to help move people from the insight phase of inspiration into the decision phase,” stated Andréa Mallard, Chief Marketing Officer at Pinterest.
As I said in the introduction, it’s not as crucial that Pinterest’s MAUs grow to 1 billion, but rather that its ARPU moves from $5.79 to $20 and beyond. That’s when the profits will start rolling in.
The Product Development Payoff
In early March, I noted that Pinterest spent $2.6 billion on research and development between 2019 and 2021. That’s an incredible 48% of its sales. However, if the net result is initiatives such as Your Shop, it’s money well spent.
For example, if you remove R&D from its income statement, the company’s operating expenses in 2021 were $1.47 billion, or 57.1% of revenue. In 2020, operating expenses, less R&D, were $1.23 billion, or 72.6% of sales. Excluding R&D, it reduced its operating expenses as a percentage of revenue by 21%.
Now, let’s assume that MAUs are flat for the next three years, but ARPU increases by 50%, 40%, and 30% over those three years. That’s an ARPU of $8.69 in 2022, $12.16 in 2023, and $15.81 in 2024. This translates into 2024 revenues of $6.81 billion.
In 2021, Pinterest had an operating profit of $326.2 million on $2.6 billion in sales while spending $780.3 million on R&D.
The million-dollar question for investors is whether all of these features and initiatives can get ARPU to $15.81 by the end of 2024.
The skeptic will point out that its U.S. ARPU grew by just 25% in Q4 2021, down from 49% YOY in Q4 2020. They’d also point out that Pinterest’s U.S. MAUs have gone from 82 million in 2018 to 98 million in 2020, before dropping to 86 million in 2021. So, its U.S. MAUs grew by just six million over three years.
The Bottom Line
I’m a glass-half-full person when it comes to Pinterest. I believe two things will happen in the future as the company continues to roll out initiatives for the 400 million+ users that continue to enjoy its platform.
First, Pinterest’s international MAUs account for 80% of the total but only contribute 22% of revenue. If these latest four initiatives are a success worldwide, I don’t see why the revenue numbers can’t get closer to 50/50 by the end of 2024.
Based on $6.81 billion in 2024 revenue [estimated in the previous section], a 50/50 split in revenue, and the existing split in MAUs, international ARPU would be $9.86 [$3.41 billion divided by 346 million MAUs], while the U.S. MAUs would be $39.56 [$3.41 billion divided by 86 million].
Based on these numbers, U.S. ARPU growth over the next three years would be 21.64%, while international ARPU growth would be 83.7%, very similar to its current growth of 80%.
The second thing that will happen is that the U.S. MAUs resume their trend higher as U.S. shoppers take to Your Shop and the other stuff it brings down the pipe between now and the end of 2024.
After all, why go to the mall when you’ve got Pinterest?
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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