Pinterest – Uncertainty Breeds Opportunity
No longer pinned in a corner
When I first encountered Pinterest, its primary target audience clearly wasn't me. Even for frequent users, the interface was cumbersome. Connecting with retailers and completing purchases was often difficult due to a less-than-optimal tech stack. Despite this, the platform's potential advantages were clear: strong user intent and a differentiated visual search experience. These factors, combined with a large volume of first-party data, made Pinterest a potentially valuable platform for advertisers.
Pinterest's challenge was monetizing user intent, helping advertisers translate intent into transactions, driving better user engagement to increase advertising reach, and exploiting revenue opportunities with long-tail advertisers.
The new management team has made progress in these areas, but Pinterest's stock has been hampered by a pattern of two steps forward, one step back since CEO Bill Ready joined the company. Although fundamentals have improved, increased expectations have proven overly optimistic relative to the time required for new initiatives and partnerships to generate faster growth.
This challenge was evident when the company missed 4Q revenue guidance by only 1%, triggering a disproportionately negative share price reaction. This minor guidance miss was largely attributable to continued softer food and beverage advertising spending, a trend not unique to Pinterest.
Uncertainty Breeds Opportunity
This stock dislocation has reset expectations and set a low bar for 2025. However, the company in the first half 2025 still faces tougher year-over-year comparisons and in the near term possibly still softer ad demand from a couple select industry verticals. This presents some risk to near-term financial performance before there is more concrete evidence that new initiatives and partnerships will translate into a sustainable, strong growth rate.
Nonetheless, 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. Furthermore, if TikTok is eventually “banned” this would likely present an additional incremental boost to Pinterest medium term revenue outlook.
Given the current positioning and undemanding price-earnings multiple of 18x, even an incremental increase in longer term growth expectations should be enough to drive outperformance. A $2 billion stock buyback authorization will further support the shares.
A Platform with Untapped Potential
In 2022, new CEO Bill Ready took the helm at Pinterest. On his first earnings call in August 2022, he articulated a clear vision for the company's future, emphasizing the platform's unique strengths and untapped potential. He highlighted Pinterest's distinctive combination of inspiration, discovery, and strong user intent.
Pinterest is very unique, and it has inspiration, discovery, and strong user intent, all in the same place. Pinterest is one of the few places online where users can discover new products by browsing and searching in a curated, personalized setting before they even know exactly what they want.
Pinners don't just scroll through or like images. They save relevant pins to thematic boards. You save something because you plan to return and take action on it. This type of engagement is a highly differentiated first-party signal we can leverage to create value for Pinners and advertisers alike.
I believe that Pinterest's unique use case appeals to advertisers of all shapes and sizes and gives advertisers the opportunity to engage at crucial and highly valuable moments in the user's purchase journey, when the user had clear intent but still determining what to buy. Longer-term, this unique combination of inspiration and intent can be applied to many categories, and I'm excited to help broaden and diversify the base of advertisers by making the platform easier to use.
Pinterest has made significant strides in delivering on the platform's promise outlined on this earnings call, driving platform engagement and monetization, and capitalizing on its position at the intersection of social media, search, and commerce.
Since the new CEO's appointment, revenue growth has accelerated from single digits in 2022 to approximately 19% in 2024. Once Pinterest overcomes the challenge of tougher first-half year-over-year comparisons, it is poised to maintain a mid-teens revenue growth rate in the medium term with growth underscored by new initiatives and partnerships gaining traction. Furthermore, Pinterest's EBITDA growth rate is expected to be even faster as margins expand, supporting a compound annual growth rate of over 20%.
Making Pinterest More Shoppable and Increasing User Engagement
The leadership team continues to effectively leverage preexisting user intent to make the platform more shoppable and support the growth of lower-funnel, more resilient direct response ad revenue. A mix of new product initiatives and improved ad tech tools has yielded higher conversion rates and better measurement, increasing Pinterest's share of advertising budgets. The platform has captured a 5% share of total ad budgets, representing a 10%+ share of digital ad budgets for some of its largest advertisers an increase from the previous low single digits. Importantly, advertisers have also been transitioning from experimental to always on performance budgets.
Pinterest is experiencing higher engagement and user growth, as evidenced by steady growth in its WAU (weekly active users) to MAU (monthly active users) ratio. In the September quarter, global monthly active users increased 11% YoY to 537 million. This improved engagement stems from a better shopping experience and content, coupled with enhanced personalization and targeting.
Higher user growth and engagement also bode well for the future, signaling increased ad inventory to support growth and expand advertiser reach. This recovery in user and engagement trends and consequent increase in platform reach will be critical to drive further ad wallet share gains and capture ad dollars as advertisers continue to shift spending from legacy to digital media channels.
Opportunity for Ad Wallet Share Gains
Pinterest is poised to gain share in the digital ad market. Sustained share gains will be important to drive a higher degree of investor interest and strengthen the company's growth proposition compared to larger digital media peers. This growth will be driven by several factors: improved connectivity with advertisers through mobile deep linking and direct links, continued adoption of new ad tools, the rollout of Performance+, and the ongoing ramp of third-party partnerships with Amazon and Google.
These initiatives should combine to drive ad wallet share gains with existing advertisers and generate long-tail and international advertising revenue growth. Long-tail advertisers represent a particularly compelling opportunity, as the company remains under indexed to this cohort. Visible success and growth underscored by the third-party partnerships with Amazon and Google will be crucial in not only driving faster than anticipated revenue growth, but in regaining the necessary investor confidence to drive stock outperformance.