Overview

  • The Internet continues to grow in popularity, especially during this period of restrictions on in-person interaction. As a result, e-commerce – social commerce, to be specific – is on the verge of surpassing traditional commerce. The social commerce market is worth $89.4 billion currently, and projections put the value at around $604.5 billion by 2027. 
  • Pinterest Inc. (NYSE: PINS) tops rivals such as Amazon and Google, and others in the social media sector by enabling users to discover items they could purchase. Discovery advertising is a significant pillar of social commerce, and it helps advertisers to net new buyers. 
  • Social commerce is where the industry is moving after Amazon, and the eBay model has run its course. PINS is well-positioned to exploit this trend because of its innovative advertising platform that provides advertisers with new ways of reaching customers. Most unique about Pinterest is the Verified Merchants Program that enables advertisers to target ads via a simple yet effective technique.

An e-commerce revolution is underway, and Pinterest is among the top beneficiaries

In 2017, more than $2.3 trillion sales took place on the online marketplace worldwide, and Shopify predicted that the sales could top $4.5 trillion by this year. It turns out Shopify had grossly underestimated e-commerce’s potential because figures from eMarketer show worldwide online market sales for 2020 coming in at $4.3 trillion. 

Before the pandemic, eMarketer had predicted the retail e-commerce sales to grow by 16.5% for the year, but the reported figure represents a 27.6% jump. The retail sales could easily breeze past Shopify’s $4.5 trillion estimates for 2021 if the current strength holds. You have to remember that total worldwide retail sales for 2020 declined by 3.0% to $23.8 trillion as per eMarketer, which provides a crucial context to just how big e-commerce was in 2020 (and will be in the new normal). 

Most interesting is that traditional e-commerce business models are giving way to new concepts such as social commerce. Social commerce entails selling products and services to audiences on social media platforms such as Pinterest. Pinterest has shown the desire to take and hold onto the pole position in this niche by infusing ingenious visual search technology on its platform. 

The company also unveiled Pinterest Lite across Latin America to grow the monthly active users (MAUs). Further efforts are underway to improve Pinterest’s penetration into primary markets such as North America, Australia, the UK, and the Asia Pacific. These efforts are already paying off, with PINS reporting a 39% jump in MAUs to 416 million in Q2 FY20. 

What does Pinterest Inc. do?

Ben Silbermann and his colleagues established the company in Palo Alto, California, under the name Cold Brew Labs Inc. in 2008. The founders moved the head office to San Francisco in 2012, during which they changed the name to Pinterest Inc. and assigned Mr. Silbermann as the CEO – he is in the same position today. 

During the Palo Alto days, Pinterest was just a social network where people shared their pictures via “boards.” As the company grew through the year, it improved the platform and added more features. At present, Pinterest is a visual search engine that enables users to discover great visual content from the community. 

Also, the platform focuses on e-commerce through visual recommendations. The pinboards on the platform include animated GIFs, short videos, and images. The content covers a diverse and broad range of topics and themes, from DIY to recipes. 

Strong user growth should provide critical fundamental support for PINS stock

Pinterest’s Q4 FY20 earnings indicate the company is making the right progress in strengthening its fundamental position. It seems the market had expected a weak financial position drawing from the experience of the third quarter, where the company reported a loss of 7 cents per share. On the contrary, the figures for Q4 came in strong with earnings per share of 43 cents. The EPS for the same quarter the previous year was 32 cents.

Earnings were also positive for both MAUs and revenue in the quarter, where Pinterest reported $706 million in revenue against a consensus estimate of $645.6 million. MAUs also beat estimates by about 10 million to settle at 459 million. 

The 4Q FY20 results indicate that the US is Pinterest’s most important market – it recorded a revenue of $582 million, up 67% year-over-year. The international market posted a more remarkable improvement in revenue, which came in 145% higher year-over-year at $123 million. 

The highlight of the quarter is Pinterest has the potential to grow its user base abroad, as well as increasing the revenue from this market. Pinterest noted in the earnings release that its shopping ad revenue experienced the fastest growth because of improvements in the advertising model. 

The appetite for PINS stock is high

PINS is a popular stock – it has been in high demand for the last year, where it jumped 296.77%. More buyers arrived after the Q4 FY20 earnings. Pinterest’s fundamentals are strong, and the possibility of extending top-line and bottom-line beats in the coming quarters is high.

At the moment, a higher appetite for PINS stock is apparent in the heightened volatility shown in the price chart. The Bollinger Bands around the earnings date are far apart in the figure below, indicating high volatility in PINS’ price action. The Average True Range (ATR) indicator confirms the huge interest in the stock.  

The appetite for PINS stock is high

The ATR also suggests that PINS did not become popular overnight. According to the indicator, interest in PINS stock started to build at around the earnings release for Q3 FY20 in late October. The stock now has a strong foundation that should springboard the price to new highs in case of another estimate beat in the next quarter.

Conclusion

Pinterest stands out as an innovative social media platform that does not stop improving its unique business model. Also, the company reports increased MAUs across the board, which supports a strong revenue position. Most importantly, the company’s revenue per user is higher than ever, and possibilities of better performance are in plenty. The company’s long-term outlook is favorable and, therefore, we recommend that PINS is a BUY