Investor Insights Into Ark's $40M PINS Investment – Buy or Wait?

The San Francisco-based digital content provider Pinterest, Inc. (PINS) recently experienced a spike in attention on social media and financial news websites following the company’s mixed fourth-quarter results, with the bottom line surpassing the analysts' consensus estimates but the revenue missing the same.

The image-browsing platform's shares experienced a sharp decline of approximately 10% following the release of its fourth-quarter results, primarily due to the fiscal 2024 first-quarter guidance falling short of Wall Street's expectations.

Cathie Wood-led Ark Invest purchased $40.3 million worth of PINS shares last week through ARK Innovation ETF (ARKK) (882,085 shares), ARK Next Generation Internet ETF (ARKW) (175,911 shares), and Ark Fintech Innovation ETF (ARKF) (79,485 shares).

Ark Invest's bold purchase appears to underscore confidence in PINS' long-term prospects despite recent hurdles. This optimism stems in part from the silver linings in PINS' quarterly results.

While PINS failed to meet its projection, revenue grew 12% year-over-year, reaching $981 million, marking continued double-digit growth in the second half of 2023 and its fourth consecutive quarter of acceleration in its top-line growth rate. With predictions for the first quarter of fiscal 2024 indicating a minimum of 15% revenue growth, PINS is potentially on track for yet another quarter of revenue growth.

Its sizable growth in its user base, noting 498 million global monthly active users for fiscal year 2023, reflects a 10.7% increase year-over-year. PINS' notable improvements in profitability were also highlighted. Its overall costs and expenses for the fourth quarter dropped by 9.9% compared to the prior-year quarter.

Through efficient cost management, including a 24.1% year-over-year reduction in sales and marketing expenses, PINS recorded a net income of $201.18 million for the quarter, resulting in a robust profit margin of 20.5%. Additionally, in 2023, PINS net cash provided by operating activities stood at $612.96 million compared to the previous year's total of $469.20 million.

Moreover, PINS recently commenced an advertising partnership with Amazon and also announced an upcoming collaboration with Alphabet-owned Google during its fourth-quarter earnings call. This latest partnership with Google would be PINS’ second third-party advertising partner on the social network.

While PINS management acknowledged that third-party partnerships had not substantially impacted fourth-quarter results, they noted a significant contribution to the current quarterly growth, anticipating this trend would continue. CEO Bill Ready further confirmed that the demand for third-party advertising is scaling as planned.

A significant 80% of PINS’ user base hails from outside the U.S., although this demographic generates only 20% of the company's revenue. The new alliances with tech behemoths Amazon and Google are predicted to ramp up user engagement. By tapping into the vast user bases of both Amazon and Google, PINS could potentially reach fresh audiences, subsequently expanding its user base and generating considerable growth in both user figures and platform activity. Ultimately, this will likely result in a rise in average revenue per user.

Additionally, these partnerships could enhance opportunities for monetization through advertising, affiliate marketing, and e-commerce transactions. This strategy has the potential to increase both revenue and profitability significantly.

Successfully implemented, these collaborations could consolidate PINS' competitive foothold in the digital landscape. The true success, however, will hinge on efficient execution, continued innovation, and the ability to leverage synergies among all parties involved.

Despite PINS' accelerating growth and promising upcoming partnerships, its recent stock downturn could be seen as a buying opportunity for long-term investors – an analysis backed by Ark’s substantial $40 million investment in PINS.

JP Morgan analysts echo this optimism, forecasting a robust 2024 performance for PINS. They cited new partnerships with Amazon and Google, expansion in regions beyond the U.S., and investments in new PINS platform products as reasons for their positive outlook. Jeffries analysts were similarly bullish on PINS, predicting that "the fastest rev growth rates are still ahead."

For the fiscal first quarter ending March 2024, PINS’ revenue and EPS are expected to increase 16.2% and 64% year-over-year to $700.23 million and $0.13, respectively.

Moreover, Wall Street analysts expect the stock to reach $43.11 in the next 12 months, indicating a potential upside of 16.9%. The price target ranges from a low of $33 to a high of $50.

Bottom Line

PINS is regarded as a distinct social media platform servicing a unique demographic compared to TikTok or Snapchat. It exclusively caters to individuals' interests and topic-oriented content, setting it apart from its counterparts. The platform's unique structure has garnered significant interest from advertisers, making PINS one of their top preferences. The company has successfully developed comprehensive solutions for advertisers while retaining major brand partners.

Financially stable and fundamentally robust, PINS presents an attractive option for institutional investors. Aside from Ark Investment, multiple institutions have adjusted their holdings in PINS’ stock. Institutions hold roughly 87% of PINS shares. Of the 775 institutional holders, 364 have increased their positions in the stock. Moreover, 124 institutions have taken new positions (15,034,165 shares).

PINS shows promise with revenue growth, favorable user trends, rising profitability, increasing popularity among Gen Z users domestically and abroad, and collaborations with tech giants. These factors make the platform highly appealing.

However, investors should pay heed to its higher-than-industry valuations. Investors need to determine their willingness to partake in long-term investment at no dividend payment and a forward non-GAAP P/E of 27.42x.

While some may perceive this as overpriced, others might find its valuation metrics, for instance, forward Price/Sales multiple of 6.99, justifiable based on anticipated future revenue growth.

Given these considerations, investors should proceed cautiously with any investments in PINS.