We came across a bullish thesis on Pinterest, Inc. (PINS) on Substack by Open Insights. In this article, we will summarize the bulls’ thesis on PINS. Pinterest, Inc. (PINS)’s share was trading at $30.87 as of Jan 8th. PINS’s trailing and forward P/E were 96.47 and 17.06 respectively according to Yahoo Finance.
Photo by Souvik Banerjee on Unsplash
Pinterest (PINS) has undergone a significant transformation since its IPO in 2019, evolving from a platform primarily known for curating online idea boards into a sophisticated visual search and discovery ecosystem. Positioned at the crossroads of search, social, and commerce, PINS serves as a valuable tool for its over 530 million monthly active users (MAUs) across more than 100 countries. By leveraging user activity to generate intent-based signals, PINS provides advertisers with an opportunity to connect with potential customers throughout the discovery-to-purchase journey. This unique model creates a positive, brand-safe environment that resonates with both users and advertisers.
Under the leadership of CEO Bill Ready, who took the reins in mid-2022, PINS has strategically shifted from a hybrid search, entertainment, and retailer model to a focused advertising-driven approach. Ready’s extensive experience at Venmo, PayPal, and Google has equipped him to steer this transformation effectively. Recognizing the value of the rich, first-party data generated by its users, PINS has moved away from the lower-margin logistics of retail operations, opting instead to capitalize on its core strength: monetizing user intent through targeted advertising. Pinterest boards, often described as electronic wishlists, are now fertile ground for advertisers to showcase products, transforming advertisements into engaging content that users willingly interact with.
This pivot has been further strengthened by advancements in artificial intelligence. PINS’ AI-powered recommendation models process over 400 million predictions per second, leveraging billions of user actions to deliver highly personalized and relevant content. This approach not only enhances user engagement but also improves return on ad spend (“ROAS”), with conversion rates nearly doubling due to the precision of targeted advertising. The platform’s ability to serve ads directly aligned with user intent positions it as an increasingly attractive option for advertisers, especially as internet privacy measures limit the effectiveness of traditional tracking methods.
Financially, PINS has shown steady improvement in monetization. While MAU growth, particularly in the U.S. and Canada, has plateaued due to market saturation, revenue growth continues to outpace user growth in all regions. In Q3 2023, for instance, revenue in the U.S. and Canada grew 12.8% year-over-year despite only a 3% increase in MAUs. Similarly, international markets like Europe and the rest of the world (“ROW”) have experienced substantial revenue gains, outstripping user growth by wide margins. These trends highlight the company’s success in increasing revenue per user, a critical metric for sustained growth.
Operationally, PINS has focused on improving efficiency and operating leverage. Since Ready’s appointment, gross margins have expanded, and operating costs as a percentage of revenue have begun to decline. The company has maintained a relatively flat headcount, demonstrating its ability to achieve higher output with minimal increases in resources. Adjusted EBITDA margins, currently in the low-to-mid-20% range, are targeted to reach the low 30% range within the next 2-4 years, reflecting significant room for improvement.
From a cash flow perspective, PINS has made notable strides. Adjusted free cash flow has risen, driven by minimal capital expenditures and disciplined expense management. However, stock-based compensation remains an area of concern, as it continues to dilute shareholder value. Nevertheless, the company’s ability to generate consistent cash flow underscores its operational strength and potential for long-term profitability.
Pinterest (PINS) presents a compelling investment opportunity, driven by a clear strategic shift under CEO Bill Ready and its unique ability to monetize user intent. The company is capitalizing on improved ad targeting, higher user engagement, and international market expansion, setting the stage for robust revenue growth. With the holiday season—a peak period for ad revenue—approaching, Pinterest is well-positioned to leverage seasonal demand and reinforce its leadership in visual search and discovery.
Looking ahead, Pinterest aims to achieve 15% topline growth in 2025, potentially adding $500 million in incremental revenue. By 2027, sustained growth at this rate could generate nearly $5.5 billion in revenue. If the company achieves its target of 30% adjusted EBITDA margins, it would yield $1.7–1.8 billion in EBITDA. Applying today’s market multiple of 22x EBITDA suggests a $37.4 billion market cap, translating to a stock price of around $55—a significant upside from its current $30 share price.
With Elliott Management ensuring disciplined share count management and risks surrounding its strategic pivot largely addressed, Pinterest offers a blend of growth potential and operational resilience. While sub-$30 prices provide a stronger margin of safety, even at current levels, PINS is an attractive long-term play.
Pinterest, Inc. (PINS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 66 hedge fund portfolios held PINS at the end of the third quarter which was 61 in the previous quarter. While we acknowledge the risk and potential of PINS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PINS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.