Pinterest Pre-earnings Analysis
Pinterest is set to report earnings after market close today and investors are eager to hear about the companies monetization efforts when it comes to advertising and the use of AI. Names like Google and Meta reported strong ad revenue on their earnings, but it’s hard to tell if a smaller player like Pinterest has been able to capture company ad spending like Meta and Google have.
Looking back, Pinterest has indeed proven itself in recent years, especially last year, when the company’s new advertising initiatives boosted revenue from their previous average of about 9% to 19% TTM (trailing twelve months). With the revenue growth came stronger net income, which is now at $1.86 billion…granted, about 1.6B of that was a one-time tax gain, but it still counts as a win in their books.
The company’s revenue is set to see another jump on quarterly earnings accompanied by a jump in earnings per share. Unfortunately for investors, Pinterest disappointed on the last two quarters when it came to profitability, falling below expectations, but markets seemed to have shrugged off the miss. The stock is up nearly 50% since the last earnings, putting the pressure on them to meet expectations this time around.
Looking deeper into the company’s financials, we see that Pinterest is a well managed business. Their balance sheet has grown to an impressive $5.34 billion in assets vs only $591 million in liabilities, leaving them with $4.75 billion in positive equity. And their free cash flow, something that matters a lot in mature companies, is nearly at $1 billion. Their full financial picture leaves them at a forward price to sales ratio of 5.55x, far less than Meta’s at 9.3x. And P/E is 11x, also less than Meta’s 24x.
If investors were willing to buy Pinterest despite the earnings miss since the last report, there’s a good chance they’ll be willing to add more if PINS can meet expectations this time around. The company’s recent efforts to provide AI-powered visual search and recommendations, as well as new advertising innovations through their Performance+ Suite (which is focused on improving advertising outcomes) could give them that boost to exceed estimates. The company is currently trading just below the average analyst valuation of about $45.
If taking an earnings play, ask yourself if PINS is the type of company you’d want to be “stuck in” if it were to gap down. While their numbers are solid, it is not a stock to carry with high confidence. Position accordingly.