Buy back a 20% Pinterest Correction - Do It Now!
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There are many tech companies whose cash flows and stocks have strengthened during the coronavirus pandemic. The key to their success is the surge in demand for digital channels for shopping, entertainment and communication. However, advanced economies are preparing to resume economic activity after a highly turbulent year, leaving investors looking for companies that will continue to thrive in the post-crisis world.
In this context, we can recommend Pinterest (NYSE: PINS) stocks, which have been made more attractive by the recent correction.
San Francisco-based photo hosting shares traded about 20% below their February high on Wednesday. The sale fell on the period of capital rotation by stock market participants. Investors are avoiding high-growth stocks because they have become too expensive and a restart of the economy could hurt companies' operating results. In 2020, Pinterest's capitalization has more than tripled.
Pinterest - weekly timeframe; Pinterest - weekly timeframe
Despite the general uncertainty surrounding growth stocks, there are several factors that make Pinterest unique in the social media market. Its platform allows images and ideas to be posted in segments such as fashion, weddings, recipes, and the like, allowing users to browse collections of Pins containing images or videos.
Users can save Pins to their own boards, building collections of ideas for anything from vacation plans to lunch recipes or holiday shopping lists. This structure sets Pinterest apart from other social networks, as users enter the site with the intention of making a purchase.
User base growth
In recent years, Pinterest has invested heavily in its platform with the intention of making it more usable as an e-commerce channel. The company monetized its pins; users can click on products or recommendations and purchase them through the brands' websites.
Last May, Pinterest and Shopify (NYSE: SHOP) formed a new digital channel with so-called Product Pins; this initiative should help monetize the large user base of small and medium enterprises.
These efforts have allowed Pinterest to reach record levels of traffic and user engagement during the pandemic. By the end of the fourth quarter, the total number of active users grew by 37% YoY to 459 million. The surge in traffic led to a 76% increase in sales over the reporting period (to $ 706 million). According to the company's estimates, over the past quarter (which ended in March), revenue growth amounted to about 70%.
Advertisers have every reason to think of Pinterest as a valuable sales channel given its user base. For example, over 60% of accounts are owned by women, making the platform attractive to businesses targeting this audience. The number of users under the age of 25 is growing twice as fast as the number of users 25 and older. Young people use Pinterest to find ideas for fashion, home décor, and education.
The growth in financial performance and the PINS user base undoubtedly played an important role in the powerful rally during the pandemic. It is worth noting that the regulatory attention faced by large social media companies also plays into the hands of smaller players in the sector.
An app with a well-defined audience and little scope for breaking the rules is in a much better position in light of potential regulatory changes than social media heavyweights like Facebook (NASDAQ: FB) and Alphabet (NASDAQ: GOOGL), which some politicians advocate for crushing.
Most of the 31 Wall Street analysts are optimistic about the company's growth prospects; 21 of them recommend “Buy” for PINS shares. The average price target is $ 90.02, which implies about 22% upside over the next 12 months.
Pinterest is in its early stages of development, and there are many opportunities for the company to grow its average revenue per user (ARPU), driven by the platform's attractiveness and user demographics to advertisers. This combination makes stocks a good long-term investment for investors looking to buy “cheaper”.