Pinterest (NYSE: PINS) continued its rally a day after the company reported better-than-expected preliminary results for the first quarter of 2020. The stock closed at $16.83, up over 11%. The stock is currently 54% below its 52-week high of $36.83.
So where does it go from here? Well, it appears there are reasons to be both bullish and bearish on Pinterest right now.
For the bulls
Pinterest reported preliminary results for the first quarter of 2020 which were better than what analysts had estimated. The company expects revenue in the range of $269-272 million and global monthly active users (MAU) in the range of 365-367 million. Analysts were expecting revenues of $267 million and MAUs of 352 million. MAUs are expected to be 89-90 million in the US and 276-277 million internationally.
The company has a strong balance sheet with around $1.7 billion in cash, no debt and an undrawn $500 million revolving credit facility.
Pinterest has seen record levels of engagement on its platform amid the coronavirus outbreak as people staying home search for more ideas and activities to help them adjust to their new routines.
According to its annual report, Pinterest reaches 335 million monthly active users and the majority of this are women. The company continues to benefit from its conversion optimization products and it saw higher seasonal conversions during the fourth quarter of 2019. According to a report by Forbes, during the outbreak, the usage of Pinterest has gone up by 37%. Growth in the number of users and high levels of engagement are likely to drive growth for the company going forward.
For the bears
Pinterest withdrew its revenue and adjusted EBITDA guidance for the full year of 2020 due to the prevailing uncertainty caused by the COVID-19 pandemic. The crisis has affected the company’s advertising revenue worldwide. Pinterest said it saw a sharp drop in revenues from the middle of March.
The company faces competition in the advertising space from the likes of Alphabet (NYSE: GOOG) and Facebook (NYSE: FB) and as the outbreak takes a toll on the entire advertising market, Pinterest’s revenues are likely to take a beating this year.
According to a report by Interactive Advertising Bureau, in the period from March to June, digital ad spend is down 33% and traditional media is down 39%.
Analysts have also raised concerns over the company’s slowing revenue growth rate over the past two years. While revenues grew 59% in 2018, this came down to 51% in 2019. Pinterest had previously projected revenues to grow 33% in 2020. The rate of growth is again down from last year and from the looks of it, it appears that revenues might take a further hit this year.
Several analysts have reduced their targets on Pinterest owing to the uncertainty and bleak outlook. All in all, it is perhaps better to approach this stock with caution for now as the current environment seems unfavorable. Pinterest is set to report its first quarter 2020 earnings results on May 5 and we can get a better perspective of where things stand at the time.
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