Pinterest Down 12.5% in Three Months: Should You Avoid PINS Stock?

Globe and Mail

3 days ago

Pinterest, Inc. PINS declined 12.5% over the past three months against the Internet - Software 's growth of 2.4%.The stock has also underperformed the Zacks Computer & Technology sector and the S&P 500's growth of 4.5% and 1%, respectively.
However, it has outperformed peers like Snap Inc. SNAP but lagged Meta Platforms, Inc. META over this period. Snap has declined 15.5%, while META has fallen 1.1% during this period.
Key Growth Catalysts for PINS
Pinterest serves a wide range of end markets, including retail, consumer packaged goods, travel, financial services, and auto. The company is actively seeking to expand into new markets to increase its user engagement. Pinterest recently formed a collaboration with the championship-winning WNBA team, 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. This will likely open up monetization opportunities in the sports marketing space from various athletic wear companies and fitness organizations.
The company's focus on improving operational rigor and incorporating sophisticated AI models to enhance relevancy and personalization is likely to bring long-term benefits. It also emphasizes building new ad tools and formats to help grow the scope of monetization on the platform. This will enable advertisers to measure the results and conversion rates, which will improve their decision-making.
Its newly added visual search feature is expected to provide a more personalized discovery experience to its user base. Instead of finding the right keywords, the tool allows users to use images as their search starting point. A refinement bar enables the user to filter based on color, style and fabric. 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.
Management's focus on enhancing monetization opportunities is driving revenue growth. In the first quarter of 2025, Shopping ad revenues in the international market grew three times faster than overall revenue growth in those regions. Advertisers and retailers are benefiting from enhanced ad efficiency and campaign performance by using Pinterest's AI-powered Performance+ suite. The company is also integrating AI capabilities to improve productivity across operations.
Major Challenges for PINS
Pinterest is heavily dependent on advertising as its primary source of revenue. Any adverse changes in the advertising industry, shift in advertiser preferences, or economic downturns can significantly affect the company's financial performance. Although the company recorded 49% growth in ad impressions in the first quarter, ad pricing declined 22% year over year, owing to lower ad pricing in Pinterest's newly expanded international markets.
The company is facing intense competition from various media companies such as Meta (including Facebook and Instagram), Google (including YouTube), Snap, Reddit, TikTok and X. Many of its competitors are larger and have significant financial resources. To fend off the competition, Pinterest has to continuously increase its investments in new tool development, which is putting pressure on its margins. In the first quarter of 2025, Total costs and expenses were $890.5 million, up from $794.4 million in the year-ago quarter. On a GAAP basis, research and development expenses rose to $331.7 million from $280.3 million.
Macroeconomic volatility is impacting some subsectors of the consumer-packaged goods vertical. Moreover, various Asia-based e-commerce retailers are lowering ad spend in the U.S. market, owing to tariff changes. These factors remain a major concern for the company.
Estimate Revision Trend of PINS
Pinterest is currently witnessing a downtrend in estimate revisions. Earnings estimates for PINS for 2025 have moved down 1.62% to $1.82 over the past 60 days, while the same for 2026 has decreased 2.3% to $2.12. The negative estimate revision portrays bearish sentiments about the stock's growth potential.
Key Valuation Metric of PINS
From a valuation standpoint, Pinterest appears to be relatively cheaper compared to the industry and below its mean. Going by the price/sales ratio, the company shares currently trade at 4.8 forward sales, lower than 5.44 for the industry and lower than the stock's mean of 5.21.
End Note
Pinterest is witnessing strong monthly active user growth across all regions. Strong emphasis on enhancing shoppability and monetization potential across the platform and the incorporation of advanced AI-integrated tools to support advertisers and retailers are tailwinds. Strategic collaboration to venture into a new market segment is positive.
However, macroeconomic factors, geopolitical volatility and tariff changes are impacting ad spend in some regions. Growing operating expenses to support the expansion of domestic and international operations are weighing on margins. Stiff competition from other consumer internet companies remains a headwind. With a Zacks Rank #3 (Hold), PINS appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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