Shares of social media company Pinterest (NYSE: PINS) have gained 20% in early-market trading today. It announced its second-quarter results on Monday and reported revenue of $666 million with adjusted earnings of $0.11 per share. Analysts tracking Pinterest stock forecast the company to report revenue of $667 million and adjusted earnings of $0.18 per share in Q2.
So, why did Pinterest's stock price surge despite its massive earnings miss in the June quarter?
While Pinterest increased sales by 9% compared to the year-ago quarter, its adjusted net income fell by 54% year-over-year in Q2. In addition, Pinterest ended Q2 with monthly active users (MAUs) of 433 million, a decline of 5% compared to the prior-year quarter. However, analysts expected MAUs to fall to 431 million in the June quarter.
Pinterest's less than impressive Q2 numbers were expected by market participants, given most other social media companies, including Meta, Snap, and Twitter, disappointed Wall Street last month.
Pinterest also disclosed that it expects Q3 revenue to grow by mid-single digit percentages year-over-year. Comparatively, analysts forecast sales to rise by 12.7% to $713.5 million in Q3.
Further, Pinterest estimates operating expenses to increase by double-digit percentages on a sequential basis. In 2022, operating expenses are forecast to increase between 35% and 40% year-over-year.
In its shareholder letter, Pinterest emphasized that the macroeconomic environment has created uncertainties for its ad partners. It has also experienced lower than expected demand from domestic big-box retailers and mid-market advertisers who reduced digital ad spending due to concerns over weak consumer spending.
In a press release yesterday, activist hedge fund Elliott Management disclosed it is now Pinterest's largest investor, most likely driving PINS stock price higher, despite its tepid results. Elliott Management believes Pinterest is a highly strategic business with massive growth potential.
The hedge fund claimed Pinterest is a leading platform at the intersection of search, commerce, and social media, creating a unique position in the advertising and shopping ecosystems.
However, like other digital advertising stocks, Pinterest might remain volatile in the near term.
The company attributed the MAUs decline to multiple factors such as lower traffic from search engines as well as the lingering impact of the pandemic unwind that began last year.
A critical metric for investors going forward will be the average revenue per user or ARPU. Pinterest's global ARPU surged 17% year-over-year to $1.54, up from $1.32 in Q2 of 2021. The expansion in ARPU was driven by ad demand and its lower funnel of shopping-related ad products. A robust expansion of Pinterest's ARPU will enable the company to grow it's top-line consistently in 2022 and beyond.
PINS stock is valued at 4.6x forward sales. Its also trading at a forward price to earnings multiple of 25.6x, which is not too expensive. However, if profit margins continue to decline,
PINS stock price may experience selling pressure.
Analysts tracking Pinterest stock have a 12-month price forecast of $24.5, similar to its current trading price.
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