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Stock of the Month: Pinterest Inc (PINS)

Written by Donnie Nguyen

July 12, 2020

The July 2020 stock of the month is Pinterest Inc (NYSE: PINS). Pinterest completed its IPO in April 2019. They own the Pinterest website and app. For those of you who’ve never used Pinterest, in my own words, I would describe it as a picture and video social media and search engine platform.

Being a social media platform makes it a competitor to Facebook (NASDAQ: FB), Instagram, Snapchat, Twitter, and Tik Tok, to name a few. Being a search engine makes it a competitor to Google, Bing, and others.

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You must be thinking, please no, not another social media platform! On the surface, it looks like the social space is crowded.

However, Pinterest appears to differentiate itself from the pack. First, a large portion of  Pinners in the U.S. are women aged 18-64. This is a very different demographic from other social media platforms.

Unlike the other social media platforms, people don’t typically go to Pinterest to interact with and make connections with other people. They do that on Facebook and Snapchat.

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And it would be very unlikely to see political or otherwise divisive content on its platform. That’s more typical for Facebook and Twitter.

Pinterest is where people go to find inspiration. For example, you might want to search Pinterest for “cute red outfits”. That’s not something a user would typically do on Instagram or Twitter. It might be something someone would do on a search engine like Google.

Pinterest vs Google

Pinterest Search Results for “cute red outfits”

Google Search Results for “cute red outfits”

The Google search results usually have sponsored content at the top of the screen – except in my screenshot above where I’m using an ad-blocker. The Pinterest results show the best-performing pins with ads subtly sprinkled in. Pinterest results are image-centric whereas Google has more text-based search results.

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Although it’s a bit subjective, the Pinterest results are displayed in a way that is much more helpful for people shopping for cute red outfits. The differences between Pinterest and Google make Pinterest a viable search engine alternative.

Facebook Boycott could drive Advertisers to Pinterest

Many high-profile companies are boycotting Facebook for not doing enough about hate content on its platform. This could be a huge benefit for Pinterest since they are known for keeping its platform clean of divisive content.

It will be very interesting to see if the Facebook boycott has any impact on Pinterest’s quarterly results.

Facebook Pulled the Plug on its Pinterest-competing App

Facebook will be pulling the plug on Hobbi, a competing app to Pinterest. Hobbi was introduced earlier this year in February.

Having a big competitor like Facebook back down is always a plus.

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RISKS

Total costs and expenses remain high. That’s expected after an IPO as there are many costs associated with the IPO process. But there are also other major costs that management mentioned on its latest earnings call. 

One such cost at the top of my mind is related to combatting posts that go against its community guidelines. As you may know from the trouble that Facebook, Twitter, and Google got into a few years ago, this can be a very costly effort.

Another cost is related to the ability to display videos. Video format Pins have been gaining popularity on the platform. Videos take up a lot more storage than photos, so it will cost more to serve them up to customers.

The revenues will have to keep up with these and other costs.

Speaking of revenues, COVID-19 could have a big impact on its top line. There could be less special events-related advertising revenues due to social distancing. Examples of special events are Labor Day, Halloween, Thanksgiving, Christmas, Black Friday, and weddings. People come to Pinterest for inspiration around these and other special events in their lives.

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As an investor, I would like to see management get the costs and expenses under control in the next couple of years.

STATS (as of July 10, 2020)

Closing Price: $26.56

Market Cap: $15.6B

Revenue (Q1 2020): $271.9 million

Revenue Growth (yoy): +34.7%

Net Loss: $141.2 million

Monthly Active Users (MAUs): 367 million (+26% growth)

SHOULD I BUY THIS STOCK?

Pinterest could be a good addition to a portfolio that needs exposure to:

  • Communications Services Sector
  • Interactive Media & Services Industry
  • Mid Cap Growth Stocks
  • Social Media Stocks
  • Digital Advertising Stocks

Be sure to do your own research and determine if Pinterest is a good stock for your portfolio.

HOW MUCH OF THIS STOCK SHOULD I BUY?

Here are some portfolio guidelines we Wolves try to live by:

  • Thou shalt not hold more than 35% in any one particular sector
  • Thou shalt not invest more than 10% of principal into one individual stock
  • Thou shalt make small purchases. The general rule of thumb is to spend no more than 2% of your portfolio on a single purchase and build up your position over time.

These portfolio guidelines have helped me tremendously through my 20+ years of investing.

BOTTOM LINE

Pinterest is a fast-growing photo and video-based social media and search platform with over 300 million monthly active users. Its platform is very different from other social and search platforms in its user demographic, use-cases, and community guidelines. Its costs are also rising fast but could stabilize after the IPO expenses have settled down.

So what do you think about Pinterest? Let me know in the comments section.

Disclosure

I/we own shares of PINS, FB

Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies whose stocks are discussed in this article.

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Donnie Nguyen

Donnie Nguyen

Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.

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