After a long drought, in 2019 we’ve had a flood of Initial public offerings. But a few of them are more interesting than the rest and perhaps the highest profile of all time. Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) are the two mega unicorns and the headline hogs. But Pintrest (NYSE:PINS) stock is my focus today because it is likely the sanest of the bunch.
The idea is to hold Pintrest stock for the long term as it could have an easier path to prosperity than UBER or LYFT. This is far from saying that PINS is a sure thing. In fact, it’s not even a safe bet, but it makes for the best speculative trade for the next two years.
With the advent of the cloud, the ubiquity of smartphones and the ease of connectivity, we now consume a ton of content online. Some of it is educational as I resort to the web for all my DIY help. Most of it so far has been on YouTube but I find myself looking on Pintrest more often. I bet I am not alone.
Getting expert help and ideas has become so easy online and Pintrest will capture more of the traffic in the next few years. It’s a blend of YouTube and Facebook where like-minded people exchange ideas. I log on, pick a topic and instantly connect with my 290 million friends who use PINS on a monthly basis.
With a few clicks, I can learn more about sport, health, decor, math or even classic trucks. I learned that while restoring my 1972 International Harvester pick-up. So what’s not to like? Sign me up.
The topics are endless so the human imagination can take this platform to its fullest potential. The exciting part about this is that Pintrest has not yet scratched the surface overseas. Most of the income is from the U.S., so like Netflix (NASDAQ:NFLX), PINS has tremendous upside potential from growing its global pie piece.
So how come the stock fell 15% after it reported earnings last week? Misalignment of expectations. Wall Street wanted to see a better bottom line than management delivered. But selling it for that reason is a mistake.
PINS reported that they grew membership 22% year-over-year. The potential is not only with the count growth but with turning them into paying customers. There we also learned that their average revenue per user (ARPU) was up 26% YoY.
So clearly, management is executing on growth plans successfully and they are focused on the right areas of their business. But instead of applauding them for the efforts, investors mistakenly focused on the fact that they missed their profit targets.
PINS is a growth company so when I evaluate it, I give them a pass on the bottom line. It’s more important to me that they deliver the growth they promise than profitability. They are supposed to spend a lot to grow, just ask Amazon (NASDAQ:AMZN) and NFLX investors. So for as long as PINS management continues to deliver fast growth, I don’t care as much about a small miss on earnings.
What about the whole sector? Is it a fad or a sustainable concept for years to come?
There is no denying the fact that social media is here to stay. Of the major players, Pintrest is the one to own for the next few years. This is a stock to keep and should deliver a hefty return for those who are willing to be patient and perhaps see some short-term redness.
Facebook (NASDAQ:FB) is the behemoth and a clear winner. But from here, I also like the odds for PINS. Twitter (NYSE:TWTR) has hit a plateau in user growth while PINS is just starting out. I am not a fan of Snapchat (NASDAQ:SNAP) at all since it had its chance and an extremely wild ride lower from its IPO.
It’s simple: PINS stock has the cleanest upside potential from here of all the majors of social media. I can see a clear path to growth behind its global efforts. Internationally, the pool of potential paying users is massive as they have yet to maximize that.
Its latest report shows that it grows sales 54% YoY and of it 100% in the international markets. However, those sales are only $15 million versus $187 million from the U.S. Clearly, they have room to grow there.
In addition, so far their target audience is somewhat focused. But I bet that over time, PINS management will learn how to widen their target reach. And if we extrapolate the current growth metrics over to the new groups, they will leverage current systems to materially expand the P&L.
In summary, Pintrest delivered 54% top-line growth, 22% user growth and 26% arpu growth and Wall Street sells it down 15%? Wrong … buy it.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.
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