Pinterest Earnings: Network Effect Driving Revenue Growth and Margin Expansion
Slightly increasing our fair value estimate for Pinterest stock.
Key Morningstar Metrics for Pinterest
- Fair Value Estimate: $37.00
- Morningstar Rating: 4 stars
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Very High
What We Thought of Pinterest’s Earnings
Pinterest’s PINS network effect further strengthened during the third quarter, demonstrated by strong top- and bottom-line results on the back of user growth, better engagement, and higher monetization. The solid revenue growth created operating leverage and margin expansion, which management stated will continue, supporting our assumptions.
In addition to the impressive results, some comments from the firm reinforce our belief that advertiser hesitancy is declining, which is good news for the overall advertising market. More advertisers are connecting their marketing data with Pinterest, which in our view indicates confidence and that they plan to spend more on the platform in the long run. We’ve slightly increased our projections, resulting in a $37 fair value estimate, up from $36.
Pinterest reported total revenue of $763 million, up 11% year over year, as its user count increased in the United States and Canada (up 1%) and international markets (up 10%), indicating that while questions continue to surround the economic environment, consumers are still planning to spend. Pinterest also further increased the ad space on the app, which when combined with more users and user engagement drove ad impressions sold 26% above last year. The price of ads declined 12%, but that marked an improvement from the 20% decline in the second quarter, demonstrating higher demand. In response to what consumers are showing, advertisers are a bit less pessimistic. All of this resulted in a 3% increase in user monetization across the U.S. and Canada (up 5%) and international markets (up 20%).
As Pinterest continued its cloud and overall cost control management, strong revenue growth created operating leverage and expanded adjusted EBITDA margin to 24% from 11% last year.
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