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Look Past the Near-Term Headwinds and Invest in Pinterest Stock

InvestorPlace - Stock Market News, Stock Advice & Trading Tips The owners of PINS stock should not worry about a drop in MAUs in Q3. Instead, they should focus on...

This story originally appeared on InvestorPlace

InvestorPlace - Stock Market News, Stock Advice & Trading Tips - InvestorPlace

Image-sharing platform Pinterest (NYSE:PINS) is set to report its third-quarter results on Nov. 4. All eyes will be on its monthly user growth in the U.S.. That was a weak spot for the firm in Q2. Though its troubles may have continued in Q3, investors must focus on the positive, long-term outlook of PINS stock.

the pinterest (PINS stock) logo on a mobile phone held by a woman
Source: Nopparat Khokthong /

The shares haven’t had a particularly great run this year. Their return over the last year trailed the S&P 500 by close to 20 percentage points.

The stock sold off considerably after Pinterest’s relatively difficult Q2. Despite the company’s recent stumbling blocks, it continues to be highly relevant to the world, boasting over 450 million monthly average users.

In an effort to increase its user base and improve its  monetization prospects, it continues to add new features and functionalities to its platforms   Therefore, PINS stock, which can climb much further, should be held for the long haul

What to Expect From the Q3 Results

Social media giant Snap (NYSE:SNAP) recently released its Q3 results, which trailed Wall Street analysts’ average expectations.

Apple’s (NASDAQ:AAPL) privacy changes have impacted Snap’s performance, and investors are concerned that a similar scenario may hurt Pinterest.

In Q2, Pinterest’s sales soared 125% year-over-year to $613.2 million. Moreover, it posted net income, excluding some items, of $169.9 million, compared to an adjusted loss of $38.4 million in the prior year. However, the core concern for investors was the slowdown in its MAUs.

The company’s revenues are determined by its global average revenue per user (ARPU) and its global MAUs.  In Q2, its global MAUs increased by 9% from the same period last year to $454 million, while its global ARPU was up an incredible 89% YOY to $1.32.

Wall Street analysts, on average, expect a healthy 43% increase in its Q3 revenues to $631.2 million. Moreover, their average estimate calls for a massive 77% YOY increase in adjusted earnings to roughly 23 cents per share.

Most importantly, though, Pinterest hasn’t provided much guidance on the company’s Q3 MAUs. However, the Q2 earnings release did mention that “Engagement headwinds on Pinterest have continued in July.”

The PayPal and Pinterest Deal Was Never Meant To Be

The cat is now out of the bag regarding the rumored deal between PayPal (NASDAQ:PYPL)  and Pinterest. PayPal has categorically denied the rumors that it had planned to acquire Pinterest for $45 billion.

Though some investors were betting on the deal, it was clear that the transaction didn’t make any sense.

Pinterest has tried to expand its e-commerce business, but its inroads have been lackluster so far.

Pinterest is essentially an advertising platform and makes roughly 100% of its sales from advertising. As a result, it may face a lot of complications due to Apple’s (NASDAQ:AAPL) recent privacy changes.

But Pinterest’s track record suggests it is likely to come out of these issues unscathed and that it won’t need PayPal’s help to become more successful. So the deal was unlikely to ever be made.

The Bottom Line on PINS Stock

PINS stock has taken a hammering lately due to a slowdown of its MAU growth in Q2. Those headwinds are likely to continue into Q3, weighing on its financial results.

However, investors should look at the big picture — the monstrous growth potential of Pinterest and PINS stock.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

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