Pinterest - Gaining Traction
Pinterest's management is executing effectively amidst macroeconomic uncertainty, strengthening the platform's foundation for increased digital ad market share.
Stock price dislocations can occur due to various factors, some idiosyncratic to a specific company, others driven by broader market volatility. It's often the latter that presents an opportunity, especially when a company’s long term outlook remains strong. This is currently the case with Pinterest.
Although potential macroeconomic headwinds are a near term risk, Pinterest’s management team continues to execute effectively, strengthening the platform's fundamental foundation. This positions the company to capitalize on its unique place at the intersection of social media, visual search, and commerce, driving further share gains in the digital ad market.
In my post Pinterest – Uncertainty Breeds Opportunity (published before the company’s last earnings report in early February), I outlined a bullish thesis based on the view that the market’s reaction to Pinterest’s Q4 2024 revenue guidance —a minor 1% shortfall— and the subsequent decline in its share was overblown, creating a compelling risk-reward setup. This post-earnings reaction triggered reactive downward revisions to 1H25 revenue forecasts from several cautious analysts. However, these revisions were driven more by concerns over tough year-over-year comps than by any meaningful shift in Pinterest's underlying business fundamentals. At that time, with supportive fundamental trends still in place and near-term estimates seemingly de-risked, the stock’s valuation presented a compelling risk-reward opportunity. As I wrote in that post:
It’s this near-term uncertainty that also presents an opportunity. The dislocation in Pinterest's share price and 2024 underperformance creates a favorable long-term risk/reward profile and alpha opportunity. Despite the stock’s poor performance, management continues to execute, leveraging the company's unique position in visual search as new product initiatives and partnerships gain more traction in 2025.
This favorable risk-reward was validated when Pinterest reported better-than-expected revenue and EBITDA for Q4 2024 and issued stronger-than-expected guidance for Q1 2025. At the time, Pinterest's undemanding price-to-earnings multiple of 17.5x, combined with muted expectations, meant that even a modest increase in consensus estimates from the better-than-expected guidance was enough to trigger a sharp post-earnings move in the share price. However, macroeconomic concerns and the potential impact on consumer-facing and digital advertising platforms have caused a correction in Pinterest's share price along with other digital media stocks.
The Q4 result reinforced Pinterest’s algorithm of strong revenue growth—up 18% year-over-year—and a faster rate of EBITDA growth, as margins exceeded expectations by 200 basis points at 41%. The reality is that not much had fundamentally changed between the earnings releases in November 2024 and February 2025, what changed was investor sentiment.
Looking past short term share price reactions, the more salient point is that under CEO Bill Ready’s leadership, Pinterest’s turnaround is firmly underway as strategic initiatives gain traction. A core element of this strategy is transforming Pinterest from a previously discovery-focused platform into more of a full-funnel shopping destination with a seamless path to a transaction. This shift has the potential to distinguish Pinterest from other social media platforms—just as its reputation as a “less toxic” platform already does. Pinterest’s focus on visual inspiration and positive content, free from the negativity and controversial content often seen on some competing platforms, enhances its appeal to advertisers seeking a brand safe environment.
A more shopping centric platform with greater actionability continues to drive user and engagement growth, increasing Pinterest’s relevance. This success is reflected in Pinterest’s weekly active users (WAU) to monthly active users (MAU) ratio, which reached a historic high of 62% in 2024. This strength in user growth and engagement translated into record-high MAUs in Q4 2024, up 11% year-over-year to 553 million globally, alongside 12% year-over-year growth in average revenue per user in both the U.S. & Canada and Europe.
Higher user engagement positions Pinterest to capture greater ad wallet share from both existing and new advertisers. The opportunity for share gains continues to be underscored by the growing adoption of new ad tech products and initiatives—such as mobile deep linking & direct links and third-party partnerships — combined with leveraging its strong first-party user data and AI to improve targeting, boost conversion rates, and enhance measurement, driving better returns on ad spend.
These trends are further reinforced by growing adoption of Pinterest’s Performance+ suite of ad tools, which remains in the early stages but is set to become a key growth driver. Performance+ will enhance ad performance and streamline campaign automation as Pinterest expands its suite of AI-driven tools and features to attract a broader base of advertisers.
The recent decline in Pinterest's share price reflects market concerns about slowing growth and the risk of a recession, factors that could impact Pinterest given its advertiser base of consumer and retail brands. While this is a legitimate risk, Pinterest remains well positioned to gain share in the digital ad market even in a weaker economic environment. This resilience is underscored by the fact that, despite ongoing revenue headwinds from the food and beverage category, overall revenue continues to grow, and first-quarter guidance exceeded expectations.
Additionally, while the future of TikTok's U.S. operations remains uncertain, if no sale agreement is reached and the Trump administration enforces legislation leading to an effective ban, Pinterest could see an incremental boost to its revenue as ad dollars and user engagement shift to alternative platforms. This potential tailwind could help offset any softness in advertiser spending caused by a weaker economy.
Pinterest has multiple drivers supporting continued ad growth, including further monetization improvements and the ongoing maturation of its partnerships with Amazon and Google. Although macroeconomic uncertainty will persist in the near term, the stock now trades at a price slightly lower than before its last earnings report—despite the company having delivered more supportive data points that reinforce a positive long term outlook.
Year-over-year revenue growth has the potential to accelerate as prior year comps ease, making the current setup incrementally more compelling than when I published my previous post. Furthermore, growth expectations have been appropriately reset from earlier periods when optimism outpaced the time needed for new initiatives and partnerships to drive stronger growth. The stock trades at 16.5x 2025 earnings—a discount to the S&P 500—despite offering an above-average growth rate. The combination of fundamentals, significant underperformance in 2024, and an attractive valuation strengthens the case for a favorable risk-reward profile and positions the stock for outperformance.