3 Key Reasons Pinterest Stock Has Major Growth Potential

3 Key Reasons Pinterest Stock Has Major Growth Potential

Pinterest (PEND -0.77%)like other social media companies, had a rough 2022. Its stock price plummeted as its number of regular users fell, and that bearish story culminated in the resignation of co-founder Ben Silbermann as CEO.

Yet despite its recent struggles, it holds three key advantages over its rivals that it could potentially leverage to orchestrate a comeback.

1. The Pinterest focus

Websites like Meta platforms‘ Facebook, Twitter and SnapSnapchat typically contains written, photographic or short video content created by individuals.

Pinterest turns this approach on its head, asking users to collect images and “pin” them to their pages. It allows “pinners” — ie, its users — to collect and share all kinds of information, from recipes to style inspirations to content from their favorite fandoms.

More importantly (at least for shareholders), it tells marketers exactly what each user likes, allowing them to tailor ad content (“promoted pins”) to a user’s preferences. Pinterest’s social media peers, in contrast, must depend on demographic and psychographic variables to guide their advertising strategies. That approach effectively attempts to stereotype customers based on age, income, education and other factors.

2. Pinterest’s pin base

The demographic and psychographic profiles of pinners are likely to appeal to marketers and investors.

About 85% of pinners first turn to Pinterest when they start a new project. It places its users on the site at times when they are open to new ideas. This makes it an effective place for marketers to grab their attention; 80% of pinners report discovering a new brand on the site.

Additionally, more than 60% of its pinners worldwide are women. This is crucial. Several surveys have found that women control most household purchasing decisions.

Furthermore, people in 45% of US households making more than $100,000 a year use Pinterest. Add it all up, and you can see that Pinterest can connect marketers and advertisers with decision makers who likely have significant amounts of disposable income to spend.

3. The ARPU event

Those high-income households could drive increases in Pinterest’s average revenue per user (ARPU). In the third quarter, about 21% of pins came from the US and Canada. But thanks to its popularity among high-income earners, its ARPU for the quarter came in at $6.13 in those countries — well above Pinterest’s global average ARPU of $1.56 for the period.

The ARPU differential also highlights how Pinterest stock could turn into a once-in-a-decade opportunity. Meta’s global ARPU was $9.41 in its most recently reported quarter. Snap, which has struggled in recent months, claimed global ARPU of $3.11 over the same period. These differences highlight how Pinterest has lagged behind on the revenue generation front.

To capitalize on that potential, Silbermann hired Bill Ready to replace himself as CEO in June. Ready was previously the president of commerce, payments and next billion users at Alphabetsaid Google. Silbermann likely used Ready to leverage its experience using payments and e-commerce software to drive higher ARPU.

Make sense of Pinterest

It is too early to say whether Ready will succeed. And the social media stock is down more than 75% from its all-time high.

However, its monthly active user count grew 3% quarter-on-quarter in Q3 to 445 million, reversing its declines over the past year.

Pinterest has its finger on the pulse of customer interests, and a fair percentage of its users have high amounts of disposable income. If it can close its ARPU gap with Snap and Meta, the stock could see a dramatic recovery.

Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Healy has posts in Pinterest. The Motley Fool has positions in and recommends Alphabet, Meta Platforms and Pinterest. The Motley Fool has a disclosure policy.

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