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Social-media stocks have blossomed over the past year as the pandemic forced the world to communicate virtually. Snap's (NYSE: SNAP) shares have more than doubled over the past four months, besting both Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) during the news-heavy election season.
But the standout of all of them is the online product and idea discovery platform platform Pinterest (NYSE: PINS), which has evolved into an e-commerce destination and one of the biggest pandemic winners as its shares have roughly quadrupled since the beginning of last year.
Last Friday, Citigroup (NYSE: C) raised its price target as it was impressed with the company's recent fourth-quarter earnings results and superior business growth momentum. Over the past year, Pinterest grew its sales 48% which is twice as fast as Facebook, according to data from S&P Global Market Intelligence. Moreover, data also shows Pinterest has been outgrowing Facebook over the past two- and three-year periods.
Pinterest's lack of controversy is its main strength
Unlike Facebook and Twitter that have been surrounded by controversy for the better part of the last eight months, with Facebook even having to face an advertiser boycotts, Pinterest has so far been immune to controversy. It's almost impossible to infuriate tens of millions of people with cooking recipes and just pretty visual boards. Pinterest's squeaky-clean reputation is pure gold that could fuel its ARPU over the long-run.
Is the best is yet to come?
The image-based social network smashed fourth quarter revenue and earnings estimates last week. With 76% YoY growth, revenue amounted to $705.6 million, greatly exceeding analyst consensus at $645.6 million. Its bottom-line growth was even more impressive as adjusted net income nearly quadrupled to $294.3 million, resulting in aprofit margin of 42% and per share adjusted earnings of $0.43, beating average estimates of $0.32.
The monthly active user base rose 37% over the past year as Pinterest gathered 459 million Pinners. Based on fourth quarter's momentum, Pinterest's business is on fire with its price more than tripled over the last year and the performance smashing the company's own guidance over several consecutive quarters.
It has an outstanding business model
Pinners come to Pinterest to work on themselves, rather than connect with other people and that means this social ‘network' has a different mission than others that exist to connect people. The platform is focused on inspiring Pinners, which generally makes it a positive place that is free of trolls or hate speech. Pinterest also doesn't allow political advertising and downplays political content, helping it avoid much of the controversy that's swirled around Facebook and Twitter.
All of this makes Pinterest a unique platform and despite the intense competition in digital advertising, Pinterest hasa competitive advantages that solidifies its position as a leader in image-based social interaction.
The company's latest results offer an alluring example of what can Pinterest's future look like at scale. Not many businesses can deliver profit margins of 42%, but that is the beauty of the digital advertising model. The costs to build and maintain the platform are relatively fixed as users generate the content. As ad spending power grows, margins will widen because its users actually want to see ads since they often come to the site to look for inspiration on what to buy. That characteristic makes Pinterest appealing to advertisers and distinguishes it from other social media platforms where ads disrupt the user experience.
Facebook may offer the best example of the power of the digital advertising model at scale , so there's plenty of room for the much smaller Pinterest to grow both its the top and bottom lines if it can execute its strategy.
It is committed to constantly improving
One of the reasons that Pinterest was so successful last year is because it launched new products like automatic bidding on ads, shopping ads, and story pins. There are many new features in store for 2021 as the company plans on enriching the Pinner experience by investing in video and building a creator ecosystem.
Pinterest also cares for advertisers, so it aims to make it easier for them to succeed on the platform by improving performance-measuring capabilities and expanding sales coverage to all types of advertisers. The idea is to makePinterest more shoppable by having businesses list their products on the platform.
The point is that Pinterest just begun monetizing its international business outside the U.S., and that is where the majority of its Pinners are. The latest quarter saw strong growth in Western Europe and its ad product will be launched in Latin America in the first half of this year.
In the fourth quarter, ARPU was $1.57, which is up 29% from the year before. Facebook's ARPU for the quarter was nearly seven times higher so there's plenty of space to run as Pinterest introduces more advertising products and builds its ad base.
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