Is Pinterest A Bet Worth Taking After 76% Share Price Slump?
Haris Anwar | Jul 21, 2022 04:15
- Pinterest's stock has surged 11% on news that Elliott Management has built a 9% stake in the company
- Conditions seem right for the activist investor to speed up the turnaround without putting up a significant fight
- As the macro environment becomes tough for the digital ad market, Pinterest is seeing a slowdown in both sales and active users
- Any company’s financials for the last 10 years
- Financial health scores for profitability, growth, and more
- A fair value calculated from dozens of financial models
- Quick comparison to the company’s peers
- Fundamental and performance charts
After going through a sharp sell-off, shares of Pinterest Inc (NYSE:PINS) are beginning to show some signs of life. The digital scrapbooking and search company is up more than 11% during the past five days, becoming the best-performing social media company for the period.
According to the Wall Street Journal, the main reason for that rebound is that one of the world's largest activist funds, Elliott Management, has quickly built a roughly 9% stake in the San Francisco-based Pinterest, becoming the company's largest shareholder.
Given Elliott's reputation for turning around struggling technology companies by pushing for changes in sales and the management style, investors are betting that this is the right time to get bullish about Pinterest. This bet has a good chance of paying off, in my view.
PINS is currently trading at around $21.30, roughly 12% above its IPO price of $19 a share. The company had previously surged to $90 a share during the pandemic before losing 76% of its value.
Pinterest's platform serves as a digital bulletin board for pictures and ideas for segments like fashion, weddings, recipes, and more, allowing users to scroll through a feed of "pins" that contain images or videos.
Users can then save the pins to customizable boards to curate ideas for anything from vacation plans to dinner recipes or holiday shopping lists. This structure makes Pinterest very different from that of other social media companies, as users come to the site with the intent to make a purchase rather than to socialize.
h2 433 Million Global Users/h2
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Numbers also tell that Pinterest is running a decent business. It has an 80% gross profit margin, $400 million of earnings before interest, taxes, depreciation, amortization, or EBITDA, and 433 million global users.
As the macro environment becomes hostile to the digital ad market, Pinterest is seeing a slowdown in both sales and active users. Still, the conditions on the ground remain favorable for Elliott Management to speed up the turnaround without putting up a significant fight with the existing management.
Just last month, Pinterest's co-founder Ben Silbermann stepped down as chief executive, becoming executive chairman, as the company named Bill Ready for the position--in an effort to speed-up Pinterest's e-commerce opportunities.
CEO Ready is joining Pinterest from Google (NASDAQ:GOOGL), where he served as president of commerce and payments, overseeing strategy and the delivery of e-commerce products. Before that, Ready served in various senior leadership roles at PayPal (NASDAQ:PYPL), including executive vice president and chief operating officer.
Pinterest has invested in making its platform more e-commerce friendly in recent years. Its pins are now shoppable, meaning users can click on an item—or a similar recommendation—and purchase it through a brand's website.
Furthermore, in June, Pinterest acquired The Yes, an artificial intelligence platform that customizes the fashion-shopping experience for its users.
In the future, advertisers could see enduring value in Pinterest due to its distinctive user base. Women, for example, make up more than 60% of its platform globally, making it quite attractive for digital advertisers who are targeting female audiences.
Moreover, the number of Pinners under age 25 grew twice as fast as Pinners 25 and over. This segment uses Pinterest to search for fashion inspiration, home decor ideas, and study tips.
h2 Bottom Line/h2Elliott Management's involvement shows that there is possibly a way forward to unlock Pinterest's true value. The company is in its early stage of growth with a lot of room to expand, helped by its unique appeal and attractive demographics. This combination makes it an excellent long-term buy, especially now that a reputable activist investor is on board.
Disclaimer: The author does not hold positions in any securities mentioned in this article.
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