Shares of Pinterest (PINS 0.07%) jumped 22.5% this week, in line with knowledge from S&P Global Market Intelligence. The photograph, exercise, and procuring social media firm reported second-quarter earnings, which traders took positively. As of 1:17 p.m. ET on Friday, Aug. 5, the inventory is up 16.2% this week.
After the shut on Aug. 1, Pinterest reported its monetary outcomes for the three months ending in June. Income grew 9% yr over yr to $666 million, whereas the corporate moved to unprofitability with a internet lack of $43 million. Apparently, this was higher than what traders anticipated, as a result of they determined to bid up the inventory by over 10% the day of the report.
Nevertheless, together with the unprofitability, Pinterest had some regarding crimson flags in its Q2 report. Most regarding is month-to-month energetic customers (MAUs), which declined 5% yr over yr within the quarter to 433 million. This was a broad-based decline throughout the globe, with North America MAUs down 8%, Europe down 4%, and the “remainder of the world” section down 3%. Pinterest has been in a position to counter these MAU declines with robust development in common income per person (ARPU), up 17% globally within the quarter. Whereas good to see, a declining person rely is detrimental to a social media firm. ARPU development can’t clear up this downside indefinitely.
Pinterest is worthwhile on a money move foundation, producing $333 million in working money move by way of the primary six months of this yr. Nevertheless, a number of this money move comes from noncash stock-based compensation bills and useful modifications in working capital. The working capital modifications are solely short-term, and the noncash stock-based compensation will present up in share dilution. For reference, Pinterest’s shares excellent are up 27% because it went public in 2019. This shall be a headwind to free money move per share, which is how shareholders get worth from their inventory holdings over the long run.
As of this writing, Pinterest trades at a market cap of $15.2 billion and a price-to-sales ratio (P/S) of solely 5.6. With a excessive gross margin, this means Pinterest inventory could possibly be low cost if it could actually proceed rising income and obtain true working leverage. However do not idiot your self too rapidly. Pinterest has by no means confirmed it could actually generate true profitability persistently, particularly to warrant a $15.2 billion market cap. Mix this with a declining person base, and Pinterest inventory does not look appetizing proper now.
Brett Schafer has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Pinterest. The Motley Idiot has a disclosure coverage.