Pinterest Shares Drop After Weak Forecast and Disappointing Revenue

Pinterest, the popular social media platform known for its visual discovery and bookmarking of ideas, experienced a drop in shares during after-hours trading on Thursday. The decline was attributed to the company’s weaker-than-expected forecast and the announcement of disappointing revenue. Despite this setback, Pinterest subsequently revealed a new partnership with Google, which helped mitigate some of the losses. Let’s delve into the details and implications of these developments.

In terms of financial performance, Pinterest reported revenue of $981 million, falling short of the expected $991 million. Meanwhile, adjusted earnings per share were 53 cents, surpassing expectations of 51 cents per share. Although revenue showed a 12% increase from the previous year, reaching $877.2 million, net income also rose significantly to $201 million, or 29 cents per share, in comparison to $17.49 million, or 3 cents per share, in the previous year. Moreover, the platform’s monthly active users in the fourth quarter rose by 11% to 498 million, exceeding analyst estimates. However, the company’s global average revenue per user fell slightly below expectations, standing at $2 instead of the projected $2.05.

Pinterest’s first-quarter revenue forecast projects a range between $690 million and $705 million, implying a year-over-year growth of 15% to 17%. However, the midpoint of this range, $697.5 million, falls slightly below the average analyst estimate of $703 million. The initial reaction to this news caused the company’s stock to plunge by as much as 28% during after-hours trading, reaching a low of $29.40. Nevertheless, after Pinterest CEO Bill Ready announced a partnership with Google focusing on third-party app integration, the shares staged a recovery, resulting in a 10% decline to $37.82.

Google Integration and Monetization Potential

The integration with Google, similar to Pinterest’s existing collaboration with Amazon, centers around third-party ads. Pinterest aims to leverage these partnerships to drive overall sales and make it easier for users to purchase goods showcased on the platform. With his former experience as President of Google’s commerce and payments business, Ready expressed enthusiasm about the potential benefits this new partnership could bring to Pinterest’s monetization efforts, particularly in international markets. Ready acknowledged that Pinterest is currently under-monetized globally, with only 20% of its sales originating from outside the U.S., despite 80% of its user base being international. While the Google integration did not significantly contribute to fourth-quarter revenue, Ready believes it can play a more significant role in the first quarter and moving forward.

Pinterest’s financial report comes at a time when the broader digital advertising market is witnessing a recovery. Key players such as Meta, Alphabet (Google’s parent company), and Amazon have experienced double-digit growth in their respective ad units during the fourth quarter. This data suggests that businesses are increasing their spending on online promotions after scaling back due to concerns surrounding the Ukraine-Russian war and high interest rates. However, not all online advertising companies have seen the same level of positive impact. Snap, for instance, witnessed a stock decline of 35% following disappointing fourth-quarter sales growth and weak guidance.

Ready, while acknowledging the recovery in the digital advertising market, highlighted that retail is Pinterest’s fastest-growing segment. The company’s focus on delivering superior performance to advertisers aligns with the industry trend of prioritizing performance metrics. Despite the temporary slowdown in demand caused by the Middle Eastern crisis, Pinterest’s Chief Financial Officer, Julia Donnelly, assured analysts that it had only a transient impact on advertising spending.

Pinterest’s weak forecast and disappointing revenue led to a drop in share prices. However, the announcement of a new partnership with Google helped the company recover some of its losses. With a continued focus on international monetization and performance-driven advertising, Pinterest aims to capitalize on the growing digital advertising market. As the industry continues to rebound, it remains to be seen how Pinterest will navigate its path towards sustained growth and profitability.

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