Visual discovery engine company Pinterest, Inc. (PINS - Get Rating) enables people to discover and personalize visual content. It allows users to find inspiration for their lives, including recipes, style, home inspiration, DIY, and others; and provides video, product, and idea pins.

PINS’ shares surged last week following the news of long-time Chief Executive Officer Ben Silbermann stepping down, handing over the reins to Google commerce executive Bill Ready. Investors are expecting a deeper push into e-commerce through this transition. Silbermann will retain his board seat as executive chairman.

“In our next chapter, we are focused on helping Pinners buy, try and act on all the great ideas they see. Bill is a great leader for this transition. He is a builder who deeply understands commerce and payments,” Silbermann said.

The company had earlier stated its plans to prioritize e-commerce apart from its advertising-based business model. Moreover, last month, PINS announced the completion of its acquisition of THE YES, an AI-powered shopping platform for fashion that enables users to shop a personalized feed based on the user’s active input on brand, style, and size.

The company expects this acquisition to accelerate its vision for it to be the home of taste-driven shopping.

Bill Ready was previously in charge of Google’s commerce business and was the executive vice president and chief operating officer of PayPal earlier. He brings his expertise in fintech and e-commerce, which is expected to boost PINS’ capabilities.

PINS shares are down 75.4% over the past year and 45.7% year-to-date to close the last trading session at $19.73.

Here’s what could shape PINS’ performance in the near term:

Macro Headwinds Hamper Growth

For the fiscal first quarter (ended March 31, 2022), PINS’ revenues increased 18.5% year-over-year to $574.89 million. However, its non-GAAP net income was $68.99 million, down 12.1% year-over-year, and its non-GAAP EPS came in at $0.10, down 9.1% year-over-year. Also, its adjusted EBITDA decreased 8.4% from the prior-year quarter to $76.80 million.

The company has been struggling with decreasing monthly active users as the pandemic-induced popularity started waning, with people increasingly engaging in outdoor activities. PINS’ global monthly active users decreased 9% from the year-ago period to 433 million. The company attributed the fall to pandemic growth in the 2021 quarter and lower search traffic due to Google’s algorithm change at the end of last year.

Moreover, PINS stated that its revenue growth was offset by macro headwinds, including supply chain issues and other factors, which impacted its CPG advertisers and some mid-market advertisers. “In Europe, Russia’s invasion of Ukraine compounded a difficult macro environment, impacting many of our advertisers in that region,” the company said.

Lower Bottom-Line Expectation

Analysts expect PINS’ revenue to increase 10% year-over-year to $674.50 million in the fiscal second quarter (ended June 2022). Also, its revenue is expected to grow 14.9% in the ongoing quarter ending September 2022 and 15.7% in the fiscal year ending December 2022.

However, the consensus EPS estimate of $0.89 for the current year indicates a decline of 21.1% year-over-year. Also, its EPS is expected to decrease 26% in the quarter (ended June 2022) and 33.3% in the ongoing quarter.

Impressive Profit Margins

PINS’ gross profit margin of 79.69% is 57.1% higher than the industry average of 50.74%. Also, its net income margin of 12.48% is 155.1% higher than the industry average of 4.89%.

PINS’ ROE, ROA, and ROTC of 12.26%, 9.35%, and 8.55% compare with the industry averages of 5.39%, 2.29%, and 3.51%, respectively.

POWR Ratings Reflect Uncertain Prospects

PINS has an overall rating of C, translating to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, consistent with its mixed valuation. In terms of forward P/E, PINS is trading at 63.23x, 253.6% higher than the industry average of 17.88x. However, its forward non-GAAP PEG of 0.41x is 68.9% lower than the industry average of 1.32x.

PINS has a D grade for Sentiment. Bleak EPS growth estimates for the coming quarters justify this grade.

Of the 65 stocks in the Internet industry, PINS is ranked #13.

Beyond what I have stated above, you can also view PINS’ grades for Quality, Growth, Momentum, and Stability here.

View the top-rated stocks in the Internet industry here.

Bottom Line

Although the company is expected to benefit from the leadership change, Baird’s Colin Sebastian said, “near-term trends are likely to remain choppy.”

On the other hand, Rosenblatt Securities analyst Barton Crockett thinks that Ready’s lack of experience in growing social media audiences could be PINS’ most significant challenge now.

So, it could be wise to wait and see how the CEO switch helps improve PINS’ growth trajectory amid the challenging macro environment before investing in the stock.

How Does Pinterest, Inc. (PINS) Stack Up Against its Peers?

While PINS has an overall POWR Rating of C, you might want to consider taking a look at its industry peers, Yelp Inc. (YELP - Get Rating), which has an A (Strong Buy) rating, and trivago N.V. (TRVG - Get Rating) and Travelzoo (TZOO - Get Rating), which have a B (Buy) rating.

PINS shares rose $0.22 (+1.12%) in premarket trading Thursday. Year-to-date, PINS has declined -45.72%, versus a -18.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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