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Why Pinterest Stock Is a ‘Sell’ after Its Q1 Earnings

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Pinterest (NYSE:PINS) reported its first-quarter earnings results after the markets closed on Tuesday. The quarter ended on March 31, 2020. Notably, the stock fell about 19% in after-hours trading on the same day. Although the revenue beat analysts’ consensus estimate, the earnings missed the estimates. Investors were disappointed after the social media company cautioned about the impact of COVID-19 on its business. The company didn’t issue an outlook for the rest of this year.

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In the first-quarter earnings press release, Pinterest said, “Our cost of revenue has generally grown with users rather than revenue, which in this environment puts some pressure on gross margins. We expect to continue to grow operating expenses in Q220 year over year, but at a slower pace compared to Q120.” Pinterest CFO Todd Morgenfeld said, “The spread of COVID-19 has certainly had an impact on our business and the businesses of our advertisers.”

Pinterest’s Q1 earnings results

In the first quarter, Pinterest reported revenue of $271.94 million, which increased by 34.68% from $201.91 million in the first quarter of 2019. The social media company beat Wall Street analysts’ consensus revenue expectation of $270.08 million for the first quarter.

Pinterest posted a GAAP net loss of $141.20 million or $0.25 per share in the first quarter. The company reported a non-GAAP EPS of -$0.10 in the first quarter compared to -$0.32 in the first quarter of 2019. However, Wall Street analysts expected the company to post non-GAAP EPS of -$0.09 in the first quarter.

Pinterest reported an adjusted EBITDA of -$53.32 million for the first quarter. In the first quarter of 2019, the company posted an adjusted EBITDA of -$38.44 million.

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Pinterest’s user base

Overall, the company added 32 million pinners, or MAUs (monthly active users), in the first quarter. Among the 32 million MAUs, only 2 million additions came from the US market. The remaining 30 million user additions were in international markets. As of March 31, Pinterest’s global MAUs totaled $367 million—higher than analysts’ expectation of $363 million.

Pinterest witnessed double-digit user growth in international markets. In the first quarter, the company’s international MAUs surged 34% YoY (year-over-year), while its US MAUs rose 6% YoY. However, the social media company generates less revenue in international markets compared to US markets. Pinterest’s global average revenue per user came in at $0.77 in the first quarter. The company highlighted that domestic users made the company $2.66 per user in the quarter, while international users brought in only $0.13 per user.

Peer comparison

In the first quarter, Snap (NYSE:SNAP) generated sales of $462.5 million—a growth of 44.3% from the first quarter of 2019. The company beat Wall Street analysts’ consensus revenue estimate of $428.8 million. In the first quarter, Snap reported an adjusted EPS of -$0.08 compared to -$0.10 in the first quarter of 2019. The earnings missed analysts’ consensus estimate of -$0.07 per share. In the first quarter, Snap reported global DAUs (daily active users) of 229 million. Read Why Are Snap’s Q1 Earnings Impressive? to learn more.

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In the first quarter, Facebook (NASDAQ:FB) generated sales of $17.7 billion—a growth of 17.6% from the first quarter of 2019. The company beat analysts’ consensus revenue expectation of $17.44 billion. In the first quarter, Facebook reported an adjusted EPS of $1.71 compared to $1.89 in the first quarter of 2019. The earnings missed analysts’ consensus estimate of $1.75 per share. The company’s DAUs were 1.73 billion on average for March 2020—a growth of 11% YoY. Facebook’s MAUs were 2.60 billion as of March 31—a growth of 10% YoY. To learn more, read Facebook Stock Could Rise More after Its Q1 Earnings.

Analysts’ recommendations for Pinterest

Among the 25 analysts tracking Pinterest, 12 recommend a “buy”—up from 11 in the last month. Meanwhile, 12 recommend a “hold” and one recommends a “sell”—unchanged from the last month. Analysts have an average target price of $21.33 on Pinterest. The target price implies a premium of 2.5% based on its closing price of $20.81 on Tuesday.

Many analysts changed their target price for Pinterest stock after its first-quarter earnings results.

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  • D.A. Davidson downgraded the stock from “buy” to “neutral” and decreased its target price from $21 to $19.
  • Nomura Instinet decreased its target price from $32 to $28.
  • Pivotal Research increased its target price from $19.50 to $22.
  • Wedbush decreased its target price from $24 to $21.
  • Baird decreased its target price from $23 to $20.

Stock returns

Pinterest stock fell 2.9% on Tuesday and ended the day at $20.81. At this closing price, Pinterest’s market cap is $12.1 billion. The stock is trading 43.5% below its 52-week high of $36.83 and 106% above its 52-week low of $10.10.

Based on the closing price on Tuesday, Pinterest stock was trading 12.2% above its 20-day moving average of $18.55. The stock is also trading 23.4% above its 50-day moving average of $16.87 and 10.0% above its 100-day moving average of $18.92.

Pinterest’s 14-day relative strength index score is 62, which indicates that the stock is near overbought levels. The stock’s upper, middle, and lower Bollinger Band levels are $22.31, $18.55, and $14.79, respectively. On Tuesday, the stock closed near its upper Bollinger Band level, which indicates that the stock is overbought.

On Tuesday, the Dow Jones Industrial Average rose by 133 points or 0.6%. Also, the S&P 500 and the Nasdaq Composite gained around 0.9% and 1.1%, respectively.

Read Could Pinterest’s Q1 Earnings Report Boost Its Stock? and Pinterest Stock Rose 14% after Great Business Update to learn more.

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