The internet has become an indispensable tool in our globalized society. Its demand is constantly escalating, largely attributable to the increasing prevalence of hybrid home-office work models, e-commerce, online learning platforms, digital gaming, and virtual communication.
As per Statista, as of April 2023, the global internet penetration rate was 64.6%. Out of the 5.18 billion people worldwide using the internet, over 311.30 million have access to it in the United States, many of whom could no longer imagine a life without it. Given this backdrop, let us consider whether internet stock Pinterest Inc. (PINS) could be an ideal portfolio addition or not.
PINS operates as a visual discovery engine in the United States and internationally. The company’s engine allows people to find ideas, provides videos, products, and idea pins, and offers organizing and planning tools.
In the first quarter of 2023, PINS repurchased 2.8 million shares of its Class A common stock for $72 million. On the other hand, as of March 31, 2023, PINS had an accumulated deficit of $2.32 billion. The company incurred significant net losses in the past.
However, on June 15, Westbrook Inc, the Los Angeles-based entertainment and media company, announced a partnership with PINS to create branded content for Halloween and the winter holiday season. This would connect Pinners with many this Halloween and holiday that would turn their vision into reality.
Over the past year, the stock has gained 45.6% to close the last trading session at $27.24. Over the past five days, the stock declined 2.6%.
Here is what could influence PINS’ performance in the near term:
Mixed Financials
For the fiscal first quarter that ended March 31, 2023, PINS’ revenues increased 4.8% year-over-year to $602.58 million, while its loss from operations stood at $243.69 million, up significantly from the year-ago quarter.
The company’s non-GAAP net income and non-GAAP net income per share stood at $57.70 million and $0.08, down 16.4% and 20% year-over-year, respectively.
PINS’ cash and cash equivalents for the same quarter stood at $1.66 billion, down 2% year-over-year. Moreover, as of March 31, 2023, PINS’ total current assets came in at $3.30 billion, compared to $3.45 billion as of December 31, 2022.
Mixed Historic Growth
PINS’ revenue grew at 32.6% and 42.8% CAGRs over the past three and five years, respectively. The company’s tangible book value and total current assets have increased at 15.1% and 15.9% CAGRs, respectively, over the past three years. However, its levered free cash flow declined 5.7% CAGR over the past three years.
Stretched Valuation
In terms of its forward non-GAAP P/E, PINS is trading at 33.99x, 127.03% higher than the industry average of 14.97x. Also, PINS’ EV/EBITDA and Price/Sales multiples of 31.37 and 6.22 are 267.3% and 427.1% higher than the industry averages of 8.54 and 1.18, respectively.
Robust Profitability
PINS’ trailing-12-month asset turnover ratio of 0.79x is 61.1% higher than its industry average of 0.49x. Moreover, its trailing-12-month gross profit and levered FCF margin of 75.25% and 15.66% are 51.8% and 113.1% higher than its industry average of 49.59% and 7.35%, respectively.
POWR Ratings Reflect Uncertainty
It’s no surprise that PINS has an overall C rating, equating to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. PINS has a B grade for Quality, consistent with its robust profitability scenario.
Moreover, PINS has a C grade for Growth, in sync with its mixed historical growth.
The stock also has a D grade for Stability, consistent with its 24-month beta of 1.35, indicating greater volatility than the broader market.
PINS is ranked #28 out of 57 stocks in the Internet industry.
Click here to access PINS’ POWR Ratings for Value, Sentiment, and Momentum.
Bottom Line
In the existing macroeconomic scenario, where inflationary pressures are weighing heavily on the financial conditions of businesses, PINS does not seem to be immune from it as well.
PINS’ growth strategy depends on, among other things, attracting more advertisers, which includes expanding its sales efforts to reach advertisers in international markets, scaling the business with existing advertisers, and expanding its advertising product offerings.
Consequently, PINS’ business, revenue, and financial results could be significantly impacted if they fail to secure new advertisers, lose existing advertising partners, or experience a decline in advertiser spending.
Moreover, considering PINS’ mixed financials, waiting for a better entry point in this internet stock could be wise.
How Does Pinterest Inc. (PINS) Stack Up Against Its Peers?
While PINS has an overall grade of C, equating to a Neutral rating, check out these other stocks within the Internet industry: trivago N.V. (TRVG), Travelzoo (TZOO), and Yelp Inc. (YELP), with an A (Strong Buy) rating.
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PINS shares were trading at $27.19 per share on Wednesday morning, down $0.05 (-0.18%). Year-to-date, PINS has gained 11.99%, versus a 16.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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