Investors should avoid Pinterest (NYSE:PINS) stock after it crashed following the company’s latest quarterly earnings.
PINS stock dropped 23% immediately after the company announced its second quarter results on July 29 and the shares now trade at $58.24.
The latest decline turned the share price negative on the year. Shares of Pinterest are now down nearly 15% since the first trading day in January.
While the stock was enduring ups and downs throughout the past seven months the company again warned of slowing user growth in this latest earnings report.
This admission appears to have dropped the floor out from underneath the company with no clear signs of where the shares will find a bottom.
Slowing Growth and PINS Stock
Pinterest bills itself as a unique social media platform. The company enables people to communicate using images, animated GIFs and videos rather than text and written messages.
Pinterest attracted more than 450 million users worldwide as of the end of June this year. However, despite the success, PINS stock has struggled in recent months.
Among investors’ primary concerns is the platform’s future now that people are emerging from Covid-19 hibernation and spending less time amusing themselves online.
PINS stock started the year exceptionally strong, hitting an all-time high of $89.90 in early February. However, investors quickly retreated after the company reported first quarter results that showed user growth slowing.
Many analysts had predicted the slowdown as the Covid-19 pandemic wanes and people spend less time sharing images and videos online via Pinterest. The company acknowledged as much when reporting that its users in the three months ended March 31 stood at 478 million compared to the 480 million that analysts had expected.
Now, the situation appears to have gotten even worse. In its just-released second quarter results, Pinterest reported that it lost another 17 million monthly active users from the previous first quarter of this year.
That figure was enough to send investors running for the exits. The decline in the number of monthly active users on Pinterest’s platform (which now stands at 454 million) completely overshadowed the fact that the company reported year-0ver-year revenue growth of 125% for the second quarter.
While the number of users on its site is declining, advertising revenue on the site is rising.
In this year’s second quarter, Pinterest announced revenue of $613 million compared to the $562.1 million forecast by analysts, as well as earnings per share (EPS) of $0.25 versus $0.13 cents expected by Wall Street.
While people might be spending less time online with Pinterest now that they can go to movie theaters, shopping malls and restaurants, the amount of revenue Pinterest is generating from each user has increased, amounting to $1.32 in the second quarter, ahead of analysts’ forecast of $1.17.
The takeaway is that Pinterest’s earnings continue to trend in a positive direction despite concerns over declining users.
Pinterest is looking for new growth through international expansion. The company is pushing into international markets, launching in Brazil at the start of this year and expanding to Mexico in May.
Pinterest is banking that its platform will be as popular with teens and young adults abroad as it is within the U.S. Currently, Pinterest is active in 29 countries with a lot more room to grow.
In 2020, international markets accounted for nearly 80% of Pinterest’s user base, but only 16% of its revenues. Monetizing users outside America will be key to Pinterest’s future success.
Additionally, Pinterest is working to upgrade its features and improve the user experience. The company has introduced “Story Pins,” a new content format on its platform that enables creators to blend images and videos to tell a story.
It has also enhanced the artificial intelligence (AI) aspects on its platform to draw in and keep users engaged. And, in a nod to marketers, the company has improved its catalog uploads, introduced new measurement tools, and launched automatic bids for its advertising campaigns.
Looking ahead, Pinterest has provided guidance for third-quarter revenue growth “in the low-40s” on a year-over-year basis. That was approximately in line with analyst expectations of 42.8% year-over-year revenue growth for the current quarter. However, Pinterest declined to provide any future guidance on its number of monthly active users.
Wait for PINS Stock To Bottom
Pinterest remains unique in the social media firmament, and while the amount of time people are engaging with the company’s platform is slowing as pandemic restrictions ease, the company still has plenty of growth opportunities ahead of it and continues to find ways monetize its user base.
Additionally, Pinterest’s earnings should be underpinned in this year’s second half as online advertising recovers to pre-pandemic levels.
While PINS stock is worth buying at some point, investors should stay on the sidelines for the time being until the share price finds a bottom and begins to recover.
Disclosure: On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.