Pinterest (PINS) Plunges 11% on Slowing User Growth, Analysts Lower PTs on 'Growing Pains'

April 28, 2021 9:02 AM EDT
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Shares of Pinterest (NYSE: PINS) plunged over 11% in pre-open trading Wednesday after the company reported slowing user growth.

The provided number in this category remained short of user growth estimates as the Street was calling for 480.5 million active users monthly while PINS delivered 478 million users.

The company reported adjusted earnings per share of $0.11, compared to analysts’ expectations of $0.07 cents. Revenue for the quarter came in at $485 million, again beating the $474 million consensus.

The $485 million in revenue this quarter marks a 78% rise compared to the same period last year. The company’s net loss plummeted 85% to $21.7 million, compared to $141.2 million a year ago.

Pinterest said the user engagement was heavily impacted by lockdown measures amid the coronavirus pandemic last year. That’s why the user growth is experiencing a slowdown at the moment and the engagement started to drop after the easing of restrictions.

“Starting in mid-March, the easing of pandemic restrictions slowed US MAU growth and lowered engagement year over year as people spent less time online,” Pinterest wrote in the letter.

“In Q1, we saw good retention of the MAUs we gained during 2020, but we still don’t know if or how long this retention will last. Our understanding of future engagement levels is similarly limited.”

Pinterest also topped views on the average revenue per user - $1.04 versus vs $0.99 forecast. The social media company also provided guidance for Q2 revenue, expecting a 105% growth year-on-year, which is also more than consensus estimates of a 95% year-to-year revenue rise.

“In Q2, we expect global MAUs to grow in the mid-teens and US MAUs to be around flat on a year-over-year percentage basis. Finally, we expect sequential operating expense growth to accelerate in Q2 as we continue to ramp investments in our long-term initiatives and growth drivers,” the company added.

Guggenheim analyst Michael Morris lowered the price target to $81.00 per share from $95.00 to reflect lower estimates as near-term domestic usage headwinds a sentiment drag despite promising overall trends.

“Pinterest continues to grow its global base of users and advertisers through investments in innovative, inspirational content, expanded shopping interfaces and self-serve ad infrastructure. These initiatives supported 1Q revenue growth of 78% vs. low-70% guidance and consensus of 75%,” Morris wrote in a note sent to clients.

“Domestic advertiser demand supported pricing on fewer impressions (a positive for user experience even though Pinterest advertising is not interruptive as is the case for other social platforms) while further international operating expansion bolstered global ARPU growth (+34%, $1.04). Domestic usage remained flat for a second consecutive quarter with guidance implying a 2mm decline in usage (“roughly flat” to 96mm MAU in 2Q21). Over time, we believe the company’s ability to further scale its global consumer and advertiser platforms will outweigh COVID-driven usage volatility.”

Thomas Champion, a senior research analyst at Piper Sandler, joined Morris in lowering the PT on the Neutral-rated PINS - from $86.00 to $75.00 on “potential engagement headwinds.”

“Management guided to a q/q decrease in MAUs for the US and commentary suggested PINS may be facing engagement headwinds with re-opening. International is coming on strong and MAU's should grow in 2Q. Also, PINS continues to make progress in shopping and with its ad product,” wrote Champion.

“While results were generally solid, we come away modestly cautious given engagement related to re-opening,” he concludes.

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