Pinterest: Chance For Redemption

seekingalpha11-05 16:45

Pinterest is set to report Q3'24 results on November 7, with consensus estimates reflecting strong growth.Despite market disappointment with original Q3 guidance, the business focus on social commerce...

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(NYSE:PINS) heads into the Q3 earnings report needing to redeem the company after the big disappointment with Q2. The monetization focus on social commerce is supposedly driving advertising growth, yet the market hasn't been happy with somewhat volatile numbers. My investment thesis remains ultra Bullish on the stock, with the market overlooking strong profits now.   Source: Finviz Big Q3 Ahead Pinterest is set to report Q3'24 results on November 7 as follows:  Consensus revenues of $896 million, up 17.5% Consensus EPS of $0.34, up 23.0%  The company guided to September quarterly revenue of $885 to $900 million, representing 16 to 18% growth. The stock market was disappointed with the consensus analyst estimates at the time of the Q2 report, expecting revenues of $909 million. Pinterest had just reported Q2 revenues topping 20% and the consensus estimates were for a similar 19% growth rate. The market needs to understand the social media company still guided to what amounts to 17% growth, up from an 11% clip last Q3. The numbers amount to somewhere around $40 million in sequentially higher revenues. Pinterest should guide to Q4 revenues topping $1.1 billion for a new quarterly record. While an investor can sweat sequential growth metrics and overanalyze whether the numbers are accelerating or decelerating, the focus should be on the solid growth path. Pinterest continues to move towards social commerce and driving higher engagement in the process due to the strong appeal of shoppable ads. Back on the Q2'24 earnings release, CEO Bill Ready was upbeat on the company adding to ad budgets: Our monetization efforts are paying off. Advertisers are seeing improved performance across key objectives on Pinterest – from brand awareness to conversion – as we continue to roll out AI-powered products and experiences. As a result, we’re gaining share of advertising budgets with some of the world’s largest brands. At the Goldman Sachs Communacopia conference, Pinterest discussed a 300 basis improvement when tuning existing LLMs. The company continues to have a lot of opportunities in social commerce and AI tools, suggesting strong growth remains a consistent opportunity, while the wild price swings miss the point. The Amazon (AMZN) and Google (GOOG) partnerships are definite positives, but the market has probably overestimated the impact. CEO Bill Ready discussed these third-party partnerships as an opportunity to fill gaps in the ad business, not necessarily drive the business. Ignored Profit After the Goldman Sachs conference, the investment firm predicted Pinterest would boost adjusted EBITDA margin by ~300 basis points per year over the next 5 years. The company is already highly cash flow positive and profitable on an adjusted basis. If anything, adjusted EBITDA isn't really a good measurement to value Pinterest. Back in Q2, the company reported adjusted EBITDA of $180 million for a margin of 21%. The EBITDA metric mostly excludes stock-based compensation from the metric, but the number also excluded $35 million in legitimate interest income.   Source: Pinterest Q2'24 earnings release Pinterest hasn't historically been valued based on profits, but the company should get such a focus going forward. The social media company is forecast to generate a 2025 EPS of $1.78 for 22% growth while only trading at 18x those EPS targets. Typically, a growth stock trades at a forward P/E multiple at up to 2x the growth rates. If one assigns a 22% growth rate to Pinterest with 300 basis point margin expansion each year on top of 15%+ sales growth, the stock would trade at up to 40x EPS targets. The stock only trades at 5x 2025 sales targets, but one should probably just focus on the cheap P/E multiple compared to growth. Pinterest has produced $463 million in operating cash flows in the 1H of the year alone, while the company has a cash balance of $2.7 billion. Even more remarkable, the enterprise value is even cheaper, with the cash balance accounting for more than 10% of the market cap. The stock is vastly cheaper considering the growing cash balance. Takeaway The key investor takeaway is that Pinterest just needs to keep producing 15%+ growth to generate strong returns for shareholders. The upside potential comes from the company guiding towards re-accelerating growth with the Q3 report and reigniting investor excitement for a stock recently trading back at $45.  Pinterest appears set to redeem the company with Q3 results. Either way, the stock is so cheap, the stock should be able to easily absorb any unexpected weakness.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481574573"}