Is Pinterest Stock a Smart Buy Before Q2 Earnings Release?
Earnings Surprise History
The company delivered a four-quarter earnings surprise of 0.53%, on average. In the last reported quarter, the company pulled off a negative earnings surprise of 8.00%.
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Pinterest this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold) increases the chances of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.
Qualcomm currently has an ESP of -6.11% with a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here.
Factors Shaping the Upcoming Results
During the quarter, Pinterest introduced AI-powered auto collages, a cutting-edge tool that streamlines the creation process of engaging content. It provides stylish outfit ideas, identifies similar products and clusters them together, and creates collages by emulating content with strong user engagement. Collages are one of the most popular content types among Gen Zs. With the launch of this innovative AI-powered tool, the company is expanding its reach among Gen Z users.
The company also bolstered the AI-powered trends tool to better support advertisers in reaching their target market. The Pinterest Trend Tools offer brands insights based on how people search, save and shop on the platform. This is expected to gain solid market traction among retailers and advertisers.
In the quarter under review, Pinterest also introduced visual search features that enable users to discover the brands, styles and ideas that better match their unique preferences. Instead of finding the right keywords, the tool allows users to use images as their search starting point. Its Visual Language Models and industry-leading multimodal embedding models empower users to find exact content through a combination of text and image. Integration of such leading-edge generative AI tools will likely boost engagement on the platform.
Pinterest also formed a collaboration with the championship-winning WNBA team, the New York Liberty. Through this partnership, Pinterest aims to bring exclusive content and in-game experiences to its platform, inspiring fans and expanding community outreach. Interest in women's basketball is increasing steadily, and this collaboration will allow PINS to tap into the growing audience base in the WNBA. Such initiatives are expected to have a positive impact on the upcoming results.
Price Performance
Over the past year, Pinterest has gained 34.6% compared to the industry 's growth of 58.3%. However, it has outperformed peers like Snap Inc. SNAP but lagged Meta Platforms, Inc. META over this period. Snap has increased 6.5%, while META has surged 61.7% during this period.
Key Valuation Metric of PINS
From a valuation standpoint, Pinterest is currently trading at a premium compared to the industry and above its mean. Going by the price/sales ratio, the company shares currently trade at 5.86 forward sales, higher than 5.79 for the industry and higher than the stock's mean of 5.2.
Investment Considerations
Pinterest's growth strategy is focused on bringing more actionable content on the platform from a wide range of sources such as users, creators, publishers and retailers. Its state-of-the-art AI recommendation model works as a core element of the platform's backend infrastructure. The company is doubling down on improving relevancy and actionability, leveraging AI, which is likely to drive user growth across all regions. Per our estimate, Pinterest's global monthly active users are projected to reach 608.6 million in 2025, indicating 10.1% year-over-year growth. In the third quarter, global MAUs are expected to reach 571.8 million, suggesting 9.5% year-over-year growth.
Pinterest's AI-powered trend tools are gaining strong popularity among advertisers. It allows advertisers to create and execute campaigns that target intent-based shoppers with enhanced content personalization. Moreover, enhancements in lower funnel solutions like mobile deep linking, shopping ads and API for conversions are providing a sustained return on investment to advertisers.
However, the company is facing intense competition from various media companies such as Meta (including Facebook and Instagram), Google (including YouTube), Snap, and X. META is ramping up investment in an AI-powered recommendation system to increase engagement across its platforms. Snap is also continuously adding interactive features to make the Snapchat platform more attractive to users and advertisers.
These factors could pose a challenge to Pinterest's expansion initiatives. Moreover, PINS' heavy reliance on advertising as its major source of revenue is a concern. Any adverse changes in the advertising industry, shifts in advertiser preferences, or economic downturns can affect financial performance.
End Note
With a Zacks Rank #3, Pinterest appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. Intensifying competition and growing operating expenses are putting pressure on profitability. Macroeconomic headwinds remain a concern.
However, the results of a single quarter are not so vital for long-term stakeholders. Investors who already own the stock may consider holding on to it as Pinterest is set to benefit from healthy traction in multiple verticals such as retail, financial services, auto, health and travel. Rising engagement among Gen Z users is a positive factor. Upward estimate revision highlights growing investors' confidence.
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Snap Inc. (SNAP): Free Stock Analysis Report
Pinterest, Inc. (PINS): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
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