Social media company Pinterest (NYSE:PINS) surged on Tuesday, climbing as much as 19.2% during regular trading hours to hit $29.91 per share around the market close on Tuesday.
The stock was fueled by the company’s third-quarter earnings release, which was posted after the market close on Monday. Earnings and revenue surpassed the consensus estimates, and the company’s Q3 performance was the clear catalyst for Tuesday’s rally.
Big jump in active users
Pinterest reported an 11% year-over-year jump in revenue to $762 million and a 110% spike in net income to $7 million, from a $65 million net loss in the same quarter a year ago. The major growth area for Pinterest was Europe, which recorded a revenue increase of 33% in the quarter, bringing the company’s European revenue to $114 million.
Pinterest’s revenue increases stemmed from an 8% spike in monthly active users (MAUs), which rose to 482 million. MAUs in Europe were up 7%, while MAUs in the U.S. and Canada gained 1%. The rest of the world saw the biggest increase in users, gaining 12% to 258 million. Further, the average revenue per user (ARPU) grew 3% overall, led by Europe, where ARPU climbed 26%.
Looking deeper into the demographics, Pinterest is seeing the fastest growth among Gen Z users, who are also the most engaged. Additionally, the new “Shop the Look” tab makes it easier for users to pivot into shopping mode, with about 70% of the products recommended being rated as exact or highly relevant matches.
The company has also benefited from increased ad impressions, which has helped with ad pricing, as Chief Financial Officer Julia Donnelly explained on the earnings call.
“Over the last several quarters, we’ve been able to drive increases in both total impressions and in ad load simultaneously, thereby demonstrating that relevant ads can be synergistic with engagement,” she explained. “In Q3, we continued this trend with ad impressions growing 26%, driven from both increases in total impressions and increases in ad load. Meanwhile, the price of ads declined 12% this quarter. While pricing still remains under pressure, this is an improvement from the 20% decline we saw last quarter.”
Positive momentum
Pinterest seems to have some positive momentum on both the revenue and expense fronts that is carrying forward into the fourth quarter. In Q4, Pinterest expects to see its revenue grow 11% to 13% year over year, while its operating expenses are projected to decline by 9% to 13%.
This is a continuation of some key trends from the third quarter, as the cost of revenue declined 7% in the third quarter to $171 million. Expense management helped Pinterest substantially expand its EBITDA (earnings before interest, taxes, depreciation and amortization) margin to 24% from 11% in the third quarter of 2022. EBITDA margin is a key metric, as it gauges operating profit as a percentage of revenue.
As Donnelly explained on the call, Pinterest had initially anticipated a 200-basis-point margin expansion in 2023, but now it is looking to triple that.
“Based on our progress in accelerating revenue growth and further controlling costs, we now expect to see significant adjusted EBITDA margin expansion again in Q4, which would put us on track to achieve approximately 600 basis points of adjusted EBITDA margin expansion for full-year 2023,” Donnelly said.
Thus, investors were surely impressed by that, and for good reason. Pinterest, with a forward price-to-earnings (P/E) ratio of 27, looks like a stock to watch.
