Pinterest Stock Gets Crushed on Disappointing User Metrics

Despite soaring revenue, Pinterest (NYSE: PINS) stock got crushed on Friday after releasing second quarter earnings showing a sequential dip in monthly active users (MAUs). The company’s cautious commentary regarding engagement also rattled investors as people are starting to spend more time outside of home.

As of 11:15 a.m. EDT, Pinterest shares were down by 19%.

The pandemic-induced engagement surge is cooling off

Revenue in the second quarter jumped 125% to $613.2 million, crushing the consensus estimate of $562.1 million. Global MAUs climbed 9% to 454 million, but that growth rate represents significant deceleration from the 30% MAU growth Pinterest enjoyed in the first quarter. 

Additionally, MAUs were down on a sequential basis compared to the 478 million MAUs Pinterest had in the first quarter. Critically, Pinterest lost 7 million MAUs where monetization is highest. The company attributed the decline to easing lockdown restrictions in the United States.

“Given that many of Pinterest’s core use cases (e.g., decor, garden, cooking, DIY) are especially relevant at home, we believe we disproportionately benefited from increased time spent at home during pandemic lockdowns,” Pinterest wrote in its letter to shareholders. “Since mid-March, however, we believe engagement on Pinterest was disproportionately lower as people began spending more time socializing with friends outside their homes, eating in restaurants, and generally participating in activities that are not our core use cases.”

On the bright side, Pinterest continues to make progress in strengthening overall monetization, which is critical to the bullish thesis. Average revenue per user (ARPU) increased meaningfully on all fronts.

SegmentARPUYOY Growth

Data source: Pinterest.

Pinterest is seeing some momentum in building out e-commerce capabilities on the platform, and the partnership with Shopify (NYSE: SHOP) is helping drive that initiative. The company also recently launched Automatic Bidding for Awareness in order to streamline the bidding process for advertisers.

That all resulted in adjusted net income of $169.9 million, or $0.25 per share. Wall Street analysts were expecting just $0.13 per share in adjusted profits.

A gloomy outlook in the near term

Pinterest expects its engagement headwinds will persist going forward, although much uncertainty remains. Due to the lack of visibility, the company declined to provide MAU guidance. Revenue growth is also expected to decelerate, with third quarter sales forecast to grow in the “low-40% range.”

Combine that top line outlook with higher operating expenses—Pinterest continues to invest in long-term growth strategies—and Pinterest’s profitability is likely to get pinched. 

“To build a new ecosystem for creators, we have to invest, and that means giving distribution to Idea Pins at the expense of some high-value advertising inventory, which impacts revenue,” CFO Todd Morgenfeld commented on the conference call with analysts.

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Evan Niu, CFA owns shares of Pinterest. The Motley Fool owns shares of and recommends Pinterest. Millennial Money is part of The Motley Fool network. Millennial Money has a disclosure policy.

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