Pinterest’s User Growth: What It Means for Future Earnings

This year 5.45 billion people worldwide used the Internet, accounting for 67.1% of the world’s total population, meaning that internet users are now a “supermajority,” as more than twice as many people use the internet than not. At the same time, internet user number growth has experienced some slowdown over the last decade.

While Pinterest, Inc. (NYSE:PINS) is one of the main beneficiaries of massive internet usage but it’s not exactly a conventional social media company. It depends on high user growth figures to generate revenue growth and earnings and has largely delivered in that regard but the share price has been in the doldrums, so what does the future hold?

Pinterest User Growth

Pinterest had 518 million MAUs, a 12% year-over-year increase as of Q1 2024. This was the highest user growth since 2021. In spite of the modest user growth, revenues climbed 22.8% that same quarter and by 20.6% in Q2 and 17.7% year-over-year in Q3.

The answer to why users keep climbing is largely found in the product-market fit the company has established. Pinterest defines itself as a “visual search and discovery platform” that provides users with inspiration to take on a new project like DYIs, operating in more than 100 countries. Users navigate the platform’s “Pins” to find ideas without having to use words to search for them.

The platform has historically attracted more women than me; they make up approximately two-thirds of its user base as of last year’s end. Additionally, Pinterest also has a large base of Gen Z users, making up about 40% of its base. The company uses a host of advertisement types to monetize its platform.

Pinterest went public on the stock market in early 2019 in a successful big-budget IPO. However, the macro-backdrop has not been kind to the company’s stock. Over the past five years, the stock is up by just 55.5%, underperforming the broader market’s 90% gains.

However, the company’s user growth has been notable over the years, although not completely unscathed from broader market turmoil. Pinterest reports monthly active users (MAUs) as a key metric, which is defined as an authenticated user who visits the platform or has interacted with it. The company then averages it on a quarterly basis to give a comprehensive view of the change in its user base quarter after quarter.

For a significant length of time, Pinterest’s global MAU was on a constant upward trajectory, rising from 265 million in Q4 of fiscal 2018 to 478 million in Q1 of fiscal 2021. This was amplified by lockdowns and so, when the economy reopened, the company’s MAUs retreated for three quarters consecutively before stabilizing once again.

Following that, quarterly MAU growth has been slower. By Q4 2023, MAUs had increased by 10.7% year-over-year due to Pinterest’s investments in relevance and personalization, which took effect from the second quarter of 2022.

500 Million Reasons to Buy Pinterest

Pinterest’s stock is still underperforming the broader market by a wide margin, down 16% for the year versus the market’s 26% gains.

Losses exacerbated the negative sentiment but bright signs appeared both in Q1 and Q2 of fiscal 2024, where the quarterly MAU count increased compared to the prior quarters.

In Q1, Pinterest’s MAU topped the 500 million mark, while in the second quarter, the figure was higher than ever at 522 million.

This mushrooming user base can largely be attributed to its Rest of the World segment (basically, user growth across regions other than the U.S., Canada, and Europe).

As of the last reported quarter, it stood at 288 million, which is a 17.1% year-over-year expansion and 9 million more than the prior quarter.

On the other hand, North America (U.S. and Canada) has largely seen flat MAU growth, while Europe’s has been quite volatile.

Pinterest’s Platform Monetization?

Monetization across a half billion users is no easy feat to scale but Pinterest has been quite successful in capitalizing on its growing user base.

Over the past five years, revenue has been climbing with Pinterest’s annual revenue hitting $1.14 billion in 2019, while the figure was $3.06 billion last year, almost a triple-fold increase.

Another metric that captures this growth is the average revenue per user. Global ARPU has also been on an upward trajectory over the past five years.

When it comes to ARPU, the geographical division of the segments becomes much more important because the average rates of monetization are different.

For instance, for Q2 of 2024, global ARPU was $1.64, which shows an increase of 8% year-over-year; U.S. and Canada ARPU was $6.85, showing an increase of 16%; Europe ARPU was $1.03, a growth of 14%; and Rest of World ARPU was $0.13, exhibiting an inflation of 13%. But, it remains clear that ARPU is increasing across the board.

Is Pinterest Stock a Buy Now?

Pinterest has the hallmarks of being a strong buy now with substantial upside potential to $40.01 per share if the consensus estimate among 35 analysts is to be believed.

A discounted cash flow forecast analysis is somewhat more pessimistic but not dramatically so with a price target of $36 per share.

Sentiment does appear to be moving in the right direction for the bulls with 15 analysts upgrading their earnings forecasts for the upcoming quarter. And that’s not entirely a surprise given that Pinterest is trading at a low price-to-earnings multiple relative to near-term earnings growth.

So too with a strong balance sheet laden with $2.4 billion of cash reserves, management has ample firepower to fuel a resurgence in share price as it allocates capital to new AI initiatives.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.