The digital advertising market ‘remains challenging’ for Pinterest, analyst explains

Tom Forte, D.A. Davidson Managing Director and Senior Research Analyst, joins Yahoo Finance Live with insight into PINS.

Video Transcript

JARED BLIKRE: Joining us for a deeper dive into Pinterest is Tom Forte, DA Davidson managing director senior research analyst. Tom, always great to see you here. Your big picture takeaway from Pinterest earnings.

TOM FORTE: Yeah, so I was cautious going into the quarter on that layoff you announced from last week. So I've been monitoring kind of beats and layoffs. Big technology companies announcing layoffs and then reporting better than expected sales and profits-- that wasn't the case with Pinterest. Both sales and profits were lower than expected. The other key takeaway here is that the digital advertising market remains challenging, both for the fiscal fourth quarter and the first quarter. That low single digit outlook, if memory serves, is lower than the initial consensus forecast and what we were looking for, which is more mid-single digit growth. So some challenging numbers from Pinterest.

DAVE BRIGGS: And leading up, we've seen Meta, we've seen Snap, Tom. So taking that all into perspective, is this more of a Snap problem or just an ad environment problem?

TOM FORTE: I think it's an ad environment problem. If you were to do a compare and contrast, Pinterest versus Snap, Snap was more heavily into financial services companies, often promoting cryptocurrencies. Pinterest, by way of comparison, was much less underweight in that type of advertisement. But when you think of the weakness in revenue for both Pinterest and for Snap, I think it's a reminder that the digital advertising market remains quite weak. The good news is, if you go back to the early stages of the pandemic, digital advertising was very weak, but rebounded very significantly when we saw signs that the economy is improving. So I think there is an opportunity for Pinterest over the next 12 months on an improving economy to see a rebound.

JARED BLIKRE: And Tom, one of the areas I just mentioned is the US dollar currency headwinds, and you attacked this in your preview for Pinterest with a question. Lesser than expected headwind from the strong US dollar-- the answer is yes. Could you go into detail about that a little bit? And then what happens if we see a higher US dollar this year? Can you kind of back out what's happened before and maybe apply that to the near future here?

TOM FORTE: So Apple is kind of the poster child for the negative impact on revenue from a strong US dollar. Apple had nearly a 10 percentage point negative impact in its December quarter, and then it guided to a lesser impact for the March quarter. Pinterest, by way of comparison, had much less of a negative impact, but still a negative impact in the December quarter, and expects to have less of a negative impact in the March quarter.

So the challenge is with the Fed raising rates, and not some of the international monetary policy being as tight. You're seeing very strong dollar, especially against the British pound and against the Japanese yen. And this is having a negative impact on the multinational sales and profits like Pinterest, like Apple and Amazon and others.

DAVE BRIGGS: CFO Todd Morgenfeld departing part of the release. Any big reaction there?

TOM FORTE: Todd did a great job taking the company public, as is very often the case with these technology companies. You have a CFO comes in, takes the company public, hands off the reins to the next one. Perhaps this was a slower handing off the reins than we've seen in other companies. Todd did a great job, but this is a good opportunity. I expect them to find a very talented individual to replace Todd.

JARED BLIKRE: And Tom, we got time to talk about this. Share buyback program of up to $500 million, I guess I would ask, is this wise right now? Is this something that's going to excite investors potentially?

TOM FORTE: So while sales is under pressure for Pinterest, unlike a lot of other companies, they're generating very significant EBITDA and cash flow. They have a tremendous balance sheet. So for them to do a $500 million buyback is a reminder to investors that they generate very significant free cash flow, have positive EBITDA. Not true for many in tech right now, so I would say it's a good move.

DAVE BRIGGS: OK, Tom Forte, good stuff. Good to see you, my friend. Thank you.