To The Moon

$Pinterest, Inc.(PINS)$ Plunged 10% after its earnings report, despite continuing its user growth momentum in 25Q2, but EPS performance set obstacles for short-term profit realization. This mismatch between "strong growth + weak profits" has become a focus of investor attention.

The key to the future lies in whether AI advertising experiences and Gen Z penetration can continue to drive profitability. If ARPU and profit margins increase in tandem, the company will remain attractive in the medium to long term; otherwise, it will be necessary to wait cautiously for the profitability trend to materialize.

This quarter, apart from $Meta Platforms, Inc.(META)$ outperforming expectations and surging, other social media advertising companies suffered a setback. $Snap Inc(SNAP)$

Detailed explanation of key financial data

1. Revenue and users

   • Revenue of US$998 million, up 17% year-on-year; global MAUs reached 578 million, up 11% year-on-year.

   • North American revenue grew by 11%; European expansion reached 34%; the Rest of World region demonstrated the strongest revenue resilience, with a year-on-year growth rate of 65%; ARPU saw a significant year-on-year increase.

2. Profitability and cash flow

   • GAAP net income of $39 million, adjusted EBITDA of $251 million, and EBITDA margin increased to 25%

   • Operating cash flow approached US$208 million, with free cash flow of approximately US$197 million, demonstrating continued improvement in cash generation capabilities.

3. Expectations and guidance

   • Q3 revenue guidance is $1.033–1.053 billion (up 15–17% year-over-year), slightly exceeding market expectations; however, weak EPS performance is a drag.

   • Management emphasized that AI tools are driving particularly strong demand for advertising, especially direct-response ads, which are popular with advertisers. The company is collaborating with $Google (GOOG)$, $Amazon (AMZN)$, and $Magnite, Inc. (MGNI)$ to enhance its platform's advertising capabilities; Gen Z users now account for over half of the total user base, representing a key new driver of growth.

However, earnings that fell short of expectations and the sector's sensitivity to earnings also weighed on the stock price—investors are weighing whether the growth story can quickly translate into sustained improvements in EPS and cash flow.

Investment View

Judging business trends from a structural perspective

Pinterest's visual search and social commerce model, powered by AI technologies such as AI auto collages and real-time trend tools, aligns closely with consumer needs, particularly demonstrating long-term potential among Gen Z and in international markets. User growth and ARPU increases indicate the sustainability of its platformization trend, with ARPU rising from approximately $1.623 per user per quarter in Q2 2024 quarter to $1.726 per user per quarter, representing a year-over-year increase of approximately 6.3%. This growth, coupled with an 11% increase in user numbers, drove a 17% increase in revenue. Pinterest is transitioning from a content-sharing platform to a shopping-oriented platform. The rising proportion of Gen Z users, combined with AI-driven improvements in advertising experiences, indicates that its strategic positioning as an e-commerce and advertising platform is deepening.

However, advertising revenue is sensitive to macroeconomic conditions and advertising budgets, and currently faces downward pressure on advertising pricing (as mentioned by TipRanks) or may be affected by intensifying competition, resulting in higher short-term volatility risks. The current valuation relies on future monetization of traffic and AI advertising penetration; if profit improvement is delayed, the market capitalization may face a correction.

Looking at valuation and market expectations from a "differentiated perspective"

The current valuation implies approximately 6.44% upside potential (based on GuruFocus' one-year target price of $41.58 and the current price of $39.07), with the market anticipating sustained high growth. However, EPS performance that falls short of expectations could lead to a valuation correction, as the market may have already priced in excessive expectations, particularly regarding profitability discrepancies. Comparable companies like Airbnb (relative to Booking and Expedia) base their valuations primarily on user growth and GMV. Pinterest's current P/E ratio is slightly higher, potentially reflecting a premium, but its user retention is not as strong as Airbnb's, so long-term commercialization efficiency should be monitored. Undervaluation may emerge as AI product penetration increases and international markets open up, potentially creating a second round of valuation expansion.

"Strategic Judgment" proposes constructive analysis

The management's current strategy does not appear to have any obvious flaws. AI-driven visual search and shoppable content are worth investing in, especially given the 34% revenue growth in the European market, which demonstrates international growth potential. However, it is necessary to be wary of the long-term impact of declining advertising prices on profitability, and it may be necessary to optimize advertising algorithms to improve ROI. There are signs that the company is moving towards platformization, with enhanced AI tools and social e-commerce functions, which may drive horizontal expansion into more categories and regions.

"Variable prompt" proposes tracking suggestions

Investors should keep an eye on: DAU/MAU ratio (user stickiness), GMV structure (e-commerce revenue share), and AI product penetration rate (like visual search click-through rate improvement). Changes could be catalysts for re-pricing valuations: like MAU growth slowing down or ad revenue share dropping could be warning signs; AI tools significantly improving ROAS could be positive catalysts.

Strategic focus:

• Key focus areas to continue advancing: AI tools and Gen Z user targeting strategies need to be further converted into sustained ARPU growth.

• Governance cost line: Pay attention to the pace of advertising sales and R&D investment to see if they affect profit convergence.

• Monitoring indicators: Focus on EPS valuation gap convergence, sustainability of market growth in the Rest of World, and diversification of advertiser sources.