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RLT Capital on Pinterest (PINS): “As Our Top Contributor in 2020, We’re Plenty Inspired”

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Jose Karlo Mari Tottoc
·6 min read
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RLT Capital Management, an investment management firm, published its fourth-quarter 2020 investor letter – a copy of which can be downloaded here. A return of 19.75% was recorded by the fund for the Q4 of 2020, outperforming its S&P 500 TR benchmark that delivered a 12.15% return. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.

RLT Capital Management, in their Q4 2020 investor letter, mentioned Pinterest, Inc. (NYSE: PINS) and shared their insights on the company. Pinterest, Inc. is a San Francisco, California-based image sharing and social media service that currently has a $48.9 billion market capitalization. Since the beginning of the year, PINS delivered a 17.95% return, impressively extending its 12-month gains to 467.37%. As of April 01, 2021, the stock closed at $77.73 per share.

Here is what RLT Capital Management has to say about Pinterest, Inc. in their Q4 2020 investor letter:

"Pinterest (PINS) likes to say that “inspiration” is the foundation for everything that happens on their site, and as our top contributor in 2020, it’s fair to say we’re plenty inspired.

From its launch in March of 2010, PINS was a site wherein users (i.e., “Pinners”) were encouraged to peruse an unending catalog of images (i.e., “Pins”) related to their personal hobbies and/or interests. Perhaps more important than the discovery of “Pins” for your favorite hobby, is the ability to save/organize those “Pins” into collections (i.e., “Boards”).

Lest the notion of pinners pinning pins to their boards tempt a yawn, let’s skip to the desirable demographics of their “valuable audience” (emphases mine):

“Pinterest reaches 335 million monthly active users, two-thirds of whom are female. As of December 2019, our total audience includes 47% of internet users in the U.S. . . . this includes 8 out of 10 moms . . . as well as more than half of all U.S. millennials ages 18-34.”

Even better than those impressive demographics is the reason that sort of audience chooses to visit Pinterest in the first place:

“[Pinners] come to discover ideas for just about anything you can imagine . . . Browsing and saving visual ideas on our service helps Pinners imagine what their future could look like, which helps them go from inspiration to reality. Pinterest is the productivity tool for planning your dream. Dreaming and productivity may seem like polar opposites, but on Pinterest, inspiration enables action and dreams [to] become reality . . .”

While inspired users are one thing, inspired advertisers will be the key to realizing shareholders’ dreams. Along those lines, PINS offers a particularly compelling alignment with the intent-driven efforts of marketers (emphases mine):

“Getting inspiration for your home, your style, or your travel often means that you are actively looking for products and services to buy . . . [since “advertisers are in the business of inspiration”] . . . relevant ads don't compete with native content on Pinterest; instead, they are content . . . Pinners use our service to get inspiration for things they want to do and buy in their real lives. This journey from ideation to action takes them down the entire purchasing process . . . [this enables advertisers to] have the opportunity to put relevant promoted content in front of Pinners at every stage of the purchasing journey . . .”

Unsurprisingly, PINS was a prime beneficiary of the unique dynamics of 2020. Monthly active users grew by 37% (to 459 million), and with a 48% year-over-year increase in sales, 2020 marked yet another year with impressive top-line growth. And yet, despite ongoing success in growing average revenues per user (a.k.a. “ARPU”), PINS’ global ARPU of $4.26 still remains downright tiny compared to the ARPUs delivered by their social media peers. Case in point: the ARPUs at Snapchat and Facebook were recently ~$9 and ~$32, respectively.

At a plump year-end valuation of ~16x estimated sales for 2021, PINS is likely going to require some growing into. That said, many of the necessary pieces are already in place, and ample green shoots are already apparent. For example:

● On the user front, PINS is still in the early stages of expanding internationally, and continues to iterate on a variety of usability and feature improvements designed to keep existing users inspired and engaged.

● On the revenue side of things, PINS continues to implement the unsexy infrastructure and backend tools that marketers need and want (e.g., analytics, automated bidding, etc.), while also integrating the early pieces of PINS’ nascent - but promising - e-commerce efforts onto the platform.

Although certainly less inspiring at year-end levels than at the portfolio’s entry point of ~$14.90, we remain optimistic that there’s significant runway ahead."

Pixabay/Public Domain

Our calculations show that Pinterest, Inc. (NYSE: PINS) ranks 27th in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Pinterest, Inc. was in 95 hedge fund portfolios, compared to 80 funds in the third quarter. PINS delivered a 17.95% return in the past 3 months.

The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

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Disclosure: None. This article is originally published at Insider Monkey.