• Pinterest stock down 38% ahead of the Q3 report.
  • Wall Street expects year-over-year growth in revenue and earnings.
  • Focus on user growth and monthly active users.

Pinterest Inc. (NYSE: PINS) is scheduled to report its Q3 2021 results after the market closes on November 4, 2021. The report comes amid reports that the company is an acquisition target for electronic payment giant PayPal. The acquisition talks have triggered increased volatility on the stock sending the shares on a roller-coaster ride.

Chart showing PINS deep pullback

Ahead of the Q3 report, the Pinterest stock has underperformed the overall market as it is down by about 38% year to date. In contrast, the S&P 500 is up by more than 21%. While the stock is up by more than 350% since 2020, when the pandemic drove a surge in users in the platform, it has significantly underperformed ever since it touched record highs.

The image-sharing platform operator has come under pressure ever since the pandemic-driven growth started to fade off. Consequently, investors should approach the company’s Q3 results with lots of caution.

Snap released disappointing third-quarter results that missed estimates on revenue and revenue guidance all but continue to fuel concerns about Pinterest as well. This is partly because the company could also have been hurt by a move by Apple to change privacy changes related to advertising on mobile apps.

Q3 earning expectations

Wall Street expects Pinterest to deliver $631.2 million in revenue for Q3 representing a 43% year-over-year increase from $442.6 million delivered the same quarter last year. In the second quarter, revenue was up 125% year-over-year to $613.2 million. Consequently, a 43% revenue growth in Q3 would signal a slowdown in growth amid tough comparison.

Earnings per share are expected to show an increase 77% year-over-year to $0.23 from $0.13 delivered the same quarter last year. In the second quarter, Pinterest posted a net income of $169.9 million or $0.25 a share, an improvement from a net loss of $38.4 million or $0.07 a share delivered a year ago. Consequently, a 77% year-over-year growth in EPS would still represent a slowdown in growth sequentially.

Given that Pinterest shares fell by more than 18% after the solid Q2 results, the response could be far worse should Q3 results miss estimates and affirm pandemic-driven growth has slowed.

What to look for when Pinterest reports

When Pinterest reports, the focus will be on Monthly Active Users, which is at the heart of the company’s core advertising business. Global monthly active users were up 9% in the second quarter to 454 million. The company did not issue guidance when it reported Q2 results, citing uncertainty around the pandemic.

Engagement headwinds have gathered pace in recent months. Monthly Active Users were down by about 7% year over year in the US in July. However, global MAUs were up by 5% year-over-year. The monthly Active User’s metric is crucial as it determines advertising campaigns that Pinterest is able to attract. The higher the number of MAUs, the more the engagement levels on the platform, which increases the prospects of Pinterest, attracting more average revenue per user.

In addition, the focus will be on enhanced product offerings, new conversion insights, and an advertiser base. Investors would also want to know whether the Idea Pins feature had the desired impact in the Q3 in boosting user engagement levels crucial to attracting ad campaigns.

Additionally, the focus will be on Pinterest’s fourth-quarter guidance as it will paint a clear picture of the underlying growth, whether it is accelerating or decelerating. Analysts expect the company to project a Q4 revenue increase of 24% year-over-year to $876.7 million with adjusted EPS of $0.47, affirming a 9.3% year-over-year increase.

Bottom line

Pinterest stock is under immense pressure going by the 38% slide year to date. The stock sentiments have taken a hit amid concerns that the pandemic-driven growth has slowed. Consequently, the outcome of the Q3 report could be crucial if the stock is to bounce back and recoup some of the losses. A disappointing report signaling slowdown in growth could trigger renewed bearish biases that could see the stock edging lower.