Pinterest (NYSE:PINS) was one of the most sought-after stocks in 2020. However, Wall Street appears to be increasingly growing cautious about the company’s capacity to retain pandemic-era users.
Indeed, active user numbers exploded at Pinterest last year, as folks isolated at home with the comfort of their social media platforms. Advertising spending and online commerce expanded much faster than expected, providing a boon to companies like Pinterest.
However, with the rate of user growth slowing, a number of experts suggest that perhaps now may be the time to be cautious with PINS stock. After all, companies can't grow at ridiculously-high levels forever. Eventually, saturation kicks in and growth stocks give in to their own success.
This sort of view has become prevalent with PINS stock, which is down more than 20% on a year-to-date basis. Indeed, from a growth perspective, Pinterest appears to be losing the attention of investors in other behemoths such as Twitter (NYSE:TWTR), Snapchat (SNAP), and Facebook (NASDAQ:FB).
Despite these weaker results, none of the analysts covering Pinterest recommend selling the stock. In fact, the average price target by analysts suggests that PINS stock could rise by approximately 35% from here. Indeed, this potential return is much higher than that of its peers, and is worth diving into.
For the record, I'm very bullish on Pinterest stock, and tend to agree with the analysts on this one.
(See Pinterest stock charts on TipRanks)
An Inspirational Platform
One of the key differentiating factors for Pinterest is its unique platform. Unlike the other big names such as Facebook or Snapchat, Pinterest is laser-focused on creating a personalized experience for each user. Pinterest aims to inspire users, providing creative ideas and useful solutions to various pain points consumers may have.
As it happens, when pursuing images of what consumers may like, having the option to buy said good embedded in the platform sure seems like a good idea. Accordingly, Pinterest's ability to monetize its platform remains one of its best attributes.
In this regard, Pinterest has done a lot of work lately to maximize the company's average revenue per user (ARPU). The company has developed unique image search methodologies. These utilize machine learning and computer vision to provide a recommendation engine for end users. The result - a streamlined and more accurate flow of information for Pinterest users.
That's great for the Pinterest user, but it's also turned out to be great for Pinterest. The company has recently posted robust profit margins and rising ARPU metrics in recent quarters. This rising ARPU metric is perhaps something investors ought to be focusing on, rather than subscriber growth, at least over the near-term.
A Great Platform for Advertisers
Advertising is the primary revenue driver for Pinterest. As with other social media platforms, the ability of advertisers to place their goods and services in front of the eyes of paying customers is a big deal. Indeed, for Pinterest, this is extra important, given the fact that this platform doesn't take a slice of each transaction on its platform.
For companies looking to advertise and sell on Pinterest, this makes this platform one of the more lucrative options in the social media space. Accordingly, Pinterest stands to benefit from growing its market share in this sector, with so much room to grow.
Pinterest is looking to grow its advertising base by utilizing AI and machine learning to automate the consumer targeting process for companies. By stretching the advertising dollar of its clients, Pinterest can ensure repeat sales and higher advertising spending over time.
This unique model has impressed even some of the most bearish analysts covering this stock. Indeed, there's tremendous opportunity for Pinterest to continue to grow its advertising base long-term, as well as to monetize its platform further, over time.
What are Analysts Saying about PINS Stock?
As per TipRanks’ analyst rating consensus, PINS stock is a Moderate Buy. Out of 17 analyst ratings, there are 6 Buy recommendations and 11 Hold recommendations.
This stock has an average Pinterest price target of $70.87. Analyst price targets range from a high of $85 per share to a low of $57 per share.
Bottom Line
The idea of tying image sharing to retail purchases is one that may not have been evident to many investors in Pinterest in the past. This model has proven to be very successful, and Pinterest appears to be only in the early stages of monetizing its potential right now.
Accordingly, there are a growing number of investors who view PINS stock as they did FB stock way back when. This company's growth potential is immense, and is likely to be realized over time.
Thus, this is a stock every growth investors should be watching at these levels right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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