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The Bull and Bear Cases for Pinterest as It Tries to Break Resistance Levels

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Over the last year, shares of Pinterest (NYSE:PINS) were a disaster. Sure, earnings were solid for PINS stock. Revenue soared 52% to $2.6 billion, producing a profit of about 46 cents per diluted share. It generated about $744 million in free cash flow. Unfortunately, user engagement numbers were pitiful.

However, don’t write the stock off just yet. At the end of 2021, the company ended the year with 431 million monthly active users (MAUs), a year-over-year decline of 6%. Management blamed the end of pandemic restrictions as the cause, as PINS stock sank to 52-week low.

“For the past year, we’ve highlighted how people came to Pinterest for inspiration to reinvent their lives during such a difficult time,” said CEO Ben Silbermann, as quoted by Barron’s. “Now, as the world opens up, we’re seeing the similar effect in the opposite direction.”

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Even now, Morgan Stanley analyst Brian Nowak downgraded PINS stock to “equal weight” from “overweight.” He also lowered his price target to $30 from $53. The analyst estimated the total amount of time users spend on Pinterest fell to 2017 levels, which is a major issue. After all, if you lose engagement, you potentially lose revenue.

But shares of PINS stock are up about 11%, or $2.30, on the day. The stock is even trying to break above triple top resistance dating back to mid-February. If it can, PINS could test $30 or even $35 near-term in a best-case scenario.

Pinterest is still growing its average revenue per user, or ARPU. In fact, as noted by Motley Fool contributors Keith Noonan, Jason Hall and Parkev Tatevosian:

“As other social media platforms deal with monetization challenges, Pinterest continues to grow the premium advertisers are willing to pay, with ARPU climbing 23% in the fourth quarter, driving Pinterest’s 20% revenue growth.”

With a good deal of negativity priced into the PINS stock, I’m a buyer at current prices — with a stop loss of at least 25% in place, just in case.

On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.  

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