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Like other social media, it must show that it can attract revenue to attract stock buyers. But with a growing user base and higher-income users using the site, buyers should eventually return to Pinterest warehouses.
Just like the social media counterparts Twitter (NYSE: TWTR) and Snap (NYSE: SNAP), the PINS share got a first bump after the IPO only to see a sharp decline. Much of that decline came after the third-quarter earnings report. A revenue and revenue miss sent the Pinterest stock up 17% in a single day after the announcement.
The PINS share price has now fallen to approximately USD 18.75 per share. This comes slightly below the IPO of $ 19 per share, but it also represents a massive decline from the summer highs.
Despite the decline, the basics continue to provide some help in evaluating the PINS stock. The price-to-sale ratio (PS) of 10.7 makes Pinterest expensive but hardly puts it in the bubble district for some recent online stocks.
What investors want to know, however, is whether the PINS share has reached a “buyable level”. The short answer is perhaps.
Like other social media stocks, the PINS stock will live and die on its ability to monetize its user base. Given the history of Facebook (NASDAQ: FB), Twitter and Snap, none of these stocks performed long-term until they figured out how to generate revenue from their websites.
Now Pinterest stock faces this challenge. The good news is that the site is well positioned to do just that. As Luke Lango points out, it has also pushed through integrations with Shopify (NYSE: SHOP) which should increase its value as a promotional vehicle.
Pinterest favorite positioning
Like Snapchat and Instagram, it acts as a primarily visual site. But it allows users to interact with the visual as well.
In addition, unlike Snapchat, its design makes it more difficult for Facebook or other social media platforms to coordinate its features. In addition, as Todd Shriber mentions, Pinterest benefits from favorable demographic trends. About 34% of the site’s users fall within the demographics of 18-49.
The site also reaches 83% of American women between the ages of 25 and 52. About 80% of new users also come from the United States, and about 50% of these new users are men. This does not capture the site in the group of teens and young adults who describe the majority of Snapchat users.
Even more important is that this older user base attracts a demographic income with higher income. This would allow it to sell higher value ads in the same way as Facebook and Twitter. Some analysts believe that Pinterest will be profitable next year.
The stock is still on a clear downward trend. Investors rarely win by fighting the herd, so I think traders should stay on the sidelines for now. With that said, if it can effectively make money on this base and create a path to positive revenue, I see it going much higher from current levels.
The conclusion on Pinterest Stock
The future of PINS shares depends on how well it makes money on its user base. Just like its social media counterparts before, the Pinterest stock fell back to its stock market price when the original hype faded. Consequently, just like Twitter and Snapchat before that, the future of PINS depends on making money on the site.
Still, while it may be challenging to overcome, I see PINS stocks as better positioned than SNAP. The growing demographic is more extensive and earns more revenue than Snapchat’s users of teens and young adults.
The PINS share is trading at almost 52 weeks’ highest level. With it in a continuing downward trend, I would look rather than wait for now. But I think when sales go up, PINs should go up as more users and advertisers turn to Pinterest.
At the time of writing, Will Healy had no position in any of the above shares. You can follow Will on Twitter at @HealyWriting.