Why Pinterest Stock Fell More Than 10% in April

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What happened

Pinterest (NYSE:PINS) stock fell 10.4% in April, according to data from S&P Global Market Intelligence. For context, the S&P 500 returned 5.3% last month.

Despite April’s pullback, shares of the image sharing platform operator (which went public in April 2019) are up 222% over the one-year period through May 3, easily outpacing the broader market’s nearly 51% return over this period.

Image source: Getty Images.

So what

We can attribute Pinterest stock’s weak performance last month largely to some investors being disappointed following the company’s April 27 release of its first-quarter 2021 report. Shares dropped 14.5% the next day.

The quarter’s revenue and earnings growth were strong — both beat Wall Street’s expectations. The likely two related reasons for the market’s reaction, as I wrote in my earnings article, were “year-over-year user growth slowing in the United States, and the company’s guiding for this dynamic to continue in the second quarter.” 

In Q1, revenue soared 78% year over year to $485.2 million, exceeding the $472.7 million analyst consensus estimate. Growth was driven by a 30% year-over-year jump in the number of monthly active users (MAUs) to 478 million and a 34% surge in global average revenue per user (ARPU) to $1.04. 

Bottom-line performance was also robust. On an adjusted basis, earnings per share (EPS) came in at $0.11, up from a loss per share of $0.10 in the year-ago period. That result easily surpassed the adjusted EPS of $0.07 that Wall Street had expected.

Data by YCharts

Now what

Management guided for Q2 revenue to grow about 105% year over year. That outlook was better than the 94% growth the Street had been expecting.

The company also said that it expects “Q2 global MAUs to grow in the mid-teens and U.S. MAUs to be around flat on a year-over-year percentage basis.” That last bit didn’t sit well with some investors.

The market overreacted, which presents a buying opportunity in my view. There are two key things to remember as I wrote in my earnings take: “First, advertising rates should continue to climb in the U.S. (and in many international markets) as the economy continues to rebound from the pandemic. Second, in Q2, the company will be facing an ultra-tough year-over-year U.S. user comparable.” 

A slowing or even a stalling of Pinterest’s user growth was to be expected as the COVID-19 pandemic eases and people aren’t at home as often. A pause in U.S. user growth, if it occurs, does not mean that U.S. user growth has permanently stalled. What has likely happened is that the pandemic pulled forward some of Pinterest’s user growth that would have occurred later than it did had the crisis never occurred. 

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.