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For Pinterest to increase its profitability (and also its valuation), the company needs to focus on monetizing the users that are outside of the US and Canada and it did manage to increase average revenues per user in the rest of the world by 50%. But they’re still low at only 43 cents per user.
The company could be an acquisition target because of its large user base. In the past, there were rumors that both Google and PayPal were interested in acquiring the company. But that was back when interest rates were low and capital was flowing freely.
Let’s assume Pinterest can get to 400 million in net income and then grow at 15% per year for the next 10 years. The company would be worth around 35 billion in ten years’ time based on 25 times multiple. And that works out to an investment return of just under 9% per annum.
But I’m not convinced that growth is possible. US numbers are flat and the platform is heavily reliant on traffic from Google which seems risky. A digital pin board just doesn’t seem like a compelling business right now, particularly at this valuation. So I give this stock a bearish rating.
But these are my personal opinions, not financial advice. And I have no position in Pinterest stock. For more detailed investing ideas, visit our website overlookedalpha.com
#stocks #investing #stockstowatch #overlookedalpha
For Pinterest to increase its profitability (and also its valuation), the company needs to focus on monetizing the users that are outside of the US and Canada and it did manage to increase average revenues per user in the rest of the world by 50%. But they’re still low at only 43 cents per user.
The company could be an acquisition target because of its large user base. In the past, there were rumors that both Google and PayPal were interested in acquiring the company. But that was back when interest rates were low and capital was flowing freely.
Let’s assume Pinterest can get to 400 million in net income and then grow at 15% per year for the next 10 years. The company would be worth around 35 billion in ten years’ time based on 25 times multiple. And that works out to an investment return of just under 9% per annum.
But I’m not convinced that growth is possible. US numbers are flat and the platform is heavily reliant on traffic from Google which seems risky. A digital pin board just doesn’t seem like a compelling business right now, particularly at this valuation. So I give this stock a bearish rating.
But these are my personal opinions, not financial advice. And I have no position in Pinterest stock. For more detailed investing ideas, visit our website overlookedalpha.com
#stocks #investing #stockstowatch #overlookedalpha
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NewsTranscript
00:00 Should you buy Pinterest stock? Pinterest is up 8% in 2023 taking the market cap to $16.8 billion.
00:07 With over $1.6 billion in cash and no debt the enterprise value is roughly $15.3 billion.
00:14 Pinterest's recent earnings report revealed the company earned $2.8 billion in revenue last year.
00:20 This represents 9% revenue growth year over year but the company is back to being unprofitable
00:26 reporting a loss of $96 million. That compares to a $316 million profit in 2021.
00:32 There's no doubt this is a real slowdown. In 2017 revenue was growing as much as 50% per year.
00:38 Last year operating expenses increased more than revenue. For example R&D costs were up 22%,
00:45 sales and marketing was up 46% and general and administrative costs were up 14%.
00:52 All told stock based compensation was almost half a billion dollars.
00:56 The platform does have a lot of users, around 450 million, but these users are spread out
01:02 across the world and the split between the three regions is important. Based on the latest numbers
01:07 one user in US and Canada brings in 50 times more revenue than one user in the rest of the world
01:13 segment. But user numbers in the US and Canada haven't grown since 2021. For Pinterest to
01:19 increase its profitability and also its valuation the company needs to focus on monetising the users
01:24 that are outside of the US and Canada and it did manage to increase average revenues per user in
01:29 the rest of the world segment by 50%. But they're still low at only 43 cents per user.
01:36 The company could be an acquisition target because of its large user base.
01:40 In the past there were rumours that both Google and PayPal were interested in buying the company.
01:45 But that was back when interest rates were low and capital was flowing freely.
01:49 Let's assume a scenario where Pinterest can get to 400 million in net income and then grow at 15%
01:55 per year for the next 10 years. The company would then be worth around 35 billion dollars in 10
02:00 years time based on a 25 times multiple. And that works out to an investment return of just under 9%
02:06 per annum. But I'm not convinced that growth is possible, US numbers are flat and the platform
02:11 is heavily reliant on traffic from Google which also seems risky. A digital pin board just doesn't
02:17 seem like a compelling business right now, particularly at this valuation. So I give this
02:22 stock a bearish rating. But these are my personal opinions not financial advice and I have no
02:27 position in Pinterest stock. For more detailed investing ideas visit our website overlookedalpha.com