To The Moon

$Pinterest, Inc.(PINS)$

At the start of 2025, I added Pinterest stock to my list of stocks to buy for the year. In this article, I want to take another look at Pinterest, conduct a fresh analysis, and update my recommendation to determine whether it still deserves a spot among my top nine stocks to buy right now.

To do this, I'll evaluate Pinterest's revenue growth over the trailing 12-month period, looking at the company's performance over the past several years. I'll also examine critical financial metrics such as its cash flow from operations to sales ratio and returns on invested capital. In addition, I'll revisit Pinterest’s monthly active user growth and average revenue per user (ARPU), along with management’s guidance for the upcoming quarter.

Finally, I’ll analyze Pinterest’s valuation using my proprietary discounted cash flow model and compare it to the current market price to determine whether the stock is still undervalued. I'll also use Pinterest’s forward price-to-earnings (P/E) ratio to provide another perspective on its valuation.

So, let’s dive in and see whether Pinterest remains a strong buy for 2025.

Earning Overview

Over the last five to six years, Pinterest has shown impressive revenue growth. The company’s trailing 12-month revenue now stands at $3.65 billion, nearly four times its revenue in 2019—representing a 4x increase in just a few years. This is a strong growth story by any measure, and it highlights the company’s ability to expand rapidly in a competitive environment.

However, what's even more exciting is that Pinterest still has significant room to grow. The global advertising market, which represents Pinterest's total addressable market, is expected to reach or surpass $1 trillion in 2025. Considering Pinterest is currently generating just $3.65 billion in revenue, this shows the massive runway for growth still ahead of the company. There is no concern that Pinterest has already saturated its market, meaning it has ample opportunity to continue growing its share of the advertising pie if it executes effectively.

Fundamental Analysis

Monthly Active User Growth and Revenue Per User

A critical component of Pinterest’s revenue growth story is its rising monthly active user base. In Q4 2024, Pinterest reported 553 million active users globally, representing an 11% year-over-year increase. Notably, 4 million of these new users came from the United States and Canada, where the company’s total grew to 103 million, up from 99 million the previous year.

This growth in North America is particularly important because Pinterest generates much higher average revenue per user (ARPU) in this region compared to other parts of the world. The latest data shows:

• ARPU in the U.S. & Canada: $8.19

• ARPU in Europe: $1.12

• ARPU in the rest of the world: $0.19

The higher ARPU from the U.S. and Canada is critical because advertisers are willing to spend more to target consumers in these regions due to their higher purchasing power. As Pinterest continues to grow its user base in North America, this directly boosts the company’s revenue potential. The more users it can attract in these high-ARPU regions, the greater the revenue opportunities for the business.

Impressive Returns on Invested Capital

One of the most critical metrics I focus on when evaluating a company is its Returns on Invested Capital (ROIC). Pinterest has seen a remarkable improvement in this area. Currently, its ROIC stands at a solid 54.5%, a dramatic turnaround from a negative 100% in 2020. This remarkable recovery highlights the company's ability to leverage its scale and grow effectively while maximizing its return on the capital it has invested. The shift from negative to positive returns in just a few years speaks volumes about Pinterest’s operational efficiency and how its business model allows it to benefit from network effects. As user engagement increases, the platform becomes more attractive to advertisers, which, in turn, increases revenue without requiring Pinterest to significantly increase its costs. This creates a more profitable and scalable business model. The improvement in ROIC is a strong indicator that Pinterest is on the right path, and the company is making the most of the resources available to it.

Guidance

I wouldn't be surprised if Pinterest’s key metrics continue to improve over time, particularly given the nature of its business model. Unlike many traditional companies that require large amounts of capital to fuel growth, Pinterest operates an asset-light business model. This means it doesn't need to invest heavily in physical infrastructure or manufacturing, allowing it to grow efficiently while maintaining healthy margins. This is one of the reasons I’ve been particularly optimistic about the entire social media sector. Companies like Meta Platforms, Snap, Pinterest, and Reddit share a similar business approach: user engagement leads to even more engagement, creating a virtuous cycle that accelerates growth. As user numbers and engagement increase, network effects come into play, giving these companies an opportunity to grow revenue in a highly profitable manner. Pinterest has already demonstrated impressive growth, and management is forecasting a 14% revenue growth for the upcoming quarter, which only reinforces my view that this positive momentum is likely to continue.

Key Drivers of Growth

Growth remains the primary driver of Pinterest’s future success, and when assessing social media companies, monthly active user growth is one of the most important metrics to consider. Pinterest has been delivering exceptional growth in this area, especially in the past year. The company recently reported 553 million active users globally, which reflects an 11% increase year-over-year. This is particularly impressive when you consider that Pinterest is competing in a market filled with other social media giants. Within that growth, the company also added 4 million new users in the U.S. and Canada, a crucial market due to the higher average revenue per user (ARPU) in this region. In fact, Pinterest generates $8.19 per user in the U.S. and Canada, compared to just $1.12 per user in Europe, and a meager $0.19 per user in the rest of the world. This highlights the significant value that comes with user growth in North America, making it a key driver for Pinterest’s revenue growth. The more users Pinterest can add in these high-ARPU regions, the more potential there is for the company to grow its revenue in a highly profitable manner.

Free Cash Flow

Looking at Pinterest’s cash flow and overall profitability, we see a remarkable trend of improvement. The company's cash flow from operations to sales ratio currently stands at 26.5%, a significant increase from a negative 10% in 2019. This shows how effectively Pinterest has scaled its operations and turned revenue growth into actual profits.

The substantial improvement in profitability over the past five years is a testament to Pinterest’s ability to control costs and execute its business model efficiently. The company doesn’t require heavy capital investment, which is a key factor driving the higher profitability ratios. This is part of why Pinterest’s business model is so attractive—it can expand its revenue without needing massive capital expenditures, making it a highly scalable business.

Risks and Challenges

User Growth Saturation in Key Markets

Pinterest has seen impressive user growth, especially in North America, which drives the majority of its revenue. However, there is always the risk that user growth could slow down in key markets like the U.S. and Canada. If Pinterest reaches saturation in these markets, the company might struggle to maintain its current growth trajectory, especially since these regions contribute the highest average revenue per user (ARPU). While there is still significant room for growth in other regions, they have lower ARPU, which limits revenue growth potential.

Increased Competition

The social media and digital advertising space is highly competitive, with dominant players such as Facebook, Instagram (Meta), TikTok, and Google continually innovating and attracting advertisers. Pinterest’s ability to differentiate itself in such a competitive environment is crucial for sustaining its growth. If its competitors release more innovative features or capture a larger share of ad dollars, Pinterest’s revenue and user engagement could suffer. The rise of new social media platforms, especially in mobile and short-form video content, also presents a challenge to Pinterest’s core business model.

Dependency on Advertising Revenue

Like many other social media platforms, Pinterest relies heavily on advertising revenue, making it vulnerable to fluctuations in the advertising market. Any downturn in global advertising spending or a shift in advertiser preferences could negatively impact Pinterest's business. For instance, if advertisers find better returns on investment with other platforms or decide to pull back on digital ad spending during economic downturns, Pinterest could experience a decline in revenue growth.

Economic Sensitivity

Pinterest, like other digital advertising companies, is sensitive to economic cycles. During periods of economic uncertainty or recession, businesses may reduce their marketing budgets, which could result in lower demand for advertising on the platform. Given that Pinterest’s primary revenue model is ad-based, any contraction in ad spending could have a direct and significant impact on its financial performance.

Valuation

Intrinsic Value and Margin of Safety

As I assess Pinterest’s future prospects, one of the tools I use is my intrinsic value calculation, which helps me determine the fair value of the stock. Based on my analysis, I estimate that Pinterest’s intrinsic value per share is around $70, more than double its current market price of $32.60. This significant discrepancy indicates that Pinterest is currently undervalued by the market, offering a large margin of safety for investors. Even if some of my assumptions or estimates are too high, the stock still appears to be trading at a discount. In fact, even if I were to lower some of my projections to more conservative estimates, the stock would still be undervalued at its current market price. This margin of safety is important because it provides a cushion for investors in case some of the assumptions don't fully materialize. The market's undervaluation of Pinterest presents an opportunity for investors to buy a high-quality company at an attractive price.

Looking at Pinterest through the lens of traditional valuation metrics, such as the forward price-to-earnings (P/E) ratio, it becomes clear that the stock is extremely undervalued. With a forward P/E ratio of just 14.5, Pinterest is trading at a much lower multiple than many other growth stocks, especially in the tech and social media sectors. This low valuation suggests that the market is not fully recognizing the company's growth potential. When you combine Pinterest’s strong user growth, impressive profitability, and undervalued stock price, it becomes clear that the company is a strong candidate for investors looking for a growth stock that is priced below its intrinsic value. As Pinterest continues to scale and monetize its platform, the stock’s current price could prove to be an excellent entry point for long-term investors.

Discounted Cash Flow and Price-to-Earnings Ratio

In the next section, I’ll apply my discounted cash flow (DCF) model to determine the intrinsic value of Pinterest’s stock and compare it to its current market price. My goal is to determine if the stock remains undervalued and whether it still presents a compelling opportunity for investors.

Additionally, I'll analyze Pinterest's forward price-to-earnings (P/E) ratio, which can offer another useful perspective on the stock's valuation. By looking at these metrics together, we can get a clearer picture of whether Pinterest is undervalued at its current price or if it’s priced correctly based on future earnings expectations.

Market sentiment

Revenue Growth and Profitability One of the most significant drivers of positive sentiment around Pinterest is its impressive revenue growth, which has shown a robust trajectory over the past several years. With its revenue growth reaching nearly four times its 2019 level, investors view Pinterest as a growth stock with significant upside potential. Furthermore, the company has shown substantial improvements in profitability metrics, particularly its cash flow from operations and cash flow to sales ratio, which have significantly improved from negative levels just a few years ago. These trends suggest that Pinterest is on the right track to becoming a more efficient, profitable business.

Potential for Expanding Revenue Streams The broader advertising market, which Pinterest taps into, is massive and expected to exceed $1 trillion in 2025. Pinterest’s relatively small revenue base in comparison to the total addressable market gives it ample room to grow. Additionally, Pinterest has diversified its revenue streams through e-commerce features, like shoppable pins, and is continuing to explore new ways to monetize its platform. This diversification contributes to the positive outlook surrounding its future financial performance.

Increased Competition from Major Players The competitive landscape in the social media and digital advertising sectors is one of the key factors contributing to negative sentiment around Pinterest. Major players like Meta (Facebook and Instagram), Google, Snap, and TikTok continue to dominate the space with established user bases and more comprehensive advertising solutions. These competitors are continuously innovating, making it challenging for Pinterest to stand out. If Pinterest fails to maintain or grow its market share amidst intense competition, investors could become wary about its future growth prospects.

Conclusion

As we’ve seen from the report and number, Pinterest has demonstrated strong revenue growth, impressive user engagement, and a solid path to profitability. The company’s potential for further growth, especially in North America, along with its expanding user base and strong financials, makes it a promising candidate for long-term investors.

Given the company’s growth trajectory and the undervaluation of its stock, I continue to believe Pinterest is one of the top stocks to buy for 2025. I’m confident that Pinterest’s ability to scale and generate significant returns will make it a valuable investment in the coming years. Let’s see if the stock can continue its growth story in 2025 and beyond.

Based on all of these factors, I am reaffirming my recommendation for Pinterest as one of my top nine stocks to buy in 2025. The company’s business model is solid, its growth prospects are promising, and its stock remains undervalued. I continue to believe that Pinterest offers significant upside potential at its current price, and I see it as a strong investment opportunity for those looking to capitalize on the growth of the social media sector. My recommendation and continue to view Pinterest as one of my top picks for the year.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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