Pinterest User Count and Guidance Disappoint

While Pinterest PINS shares are down 19% in after-hours trading due to disappointing second-quarter user growth, we are increasing our fair value estimate to $70 from $69 as we now expect slightly higher revenue growth and margins this year and beyond. We believe the stock is becoming attractive, as it is approaching 4-star territory. Pinterest reported strong second-quarter results, surpassing FactSet consensus estimates on the top- and bottom-lines as advertising demand increased during the economic recovery. However, Pinterest’s user count came in below guidance and expectations, likely as a result of fewer pandemic restrictions pushing consumers to go out more. As we anticipated, deceleration in user growth was more than offset by higher ad prices due to surging demand. But user growth will likely remain difficult during the second half of the year. While management did not provide third-quarter user guidance, its most recent user count for the month of July showed a year-over-year decline. However, revenue growth guidance for the third quarter indicates that higher monetization will again more than offset the impact of user decline. We remain confident in Pinterest’s ability to maintain its network effect and attract users, mainly due to the firm’s continuing investments in app enhancement for users, content creators, and advertisers. We also continue to expect Pinterest to hit full-year GAAP profitability this year, toward which the firm made significant progress in the second quarter.

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