Image-sharing platform Pinterest (PINS.N) beat Wall Street targets for second-quarter results on Tuesday and forecast higher margins for the year, supported by an advertising market recovery and cost-cutting measures. The company’s revenue, from placing advertisements next to users’ “pins” or posts, rose 105% during the quarter to $708 million, compared with a Refinitiv IBES estimate of $530 million. Ad spending has rebounded after a slump in the early months of the COVID-19 crisis, as retailers and others look to cash in on a boom in online shopping driven by shoppers trying to avoid the crowds at physical stores.
Pinterest’s adjusted earnings per share rose to 21 cents, a penny above expectations, from 11 cents in the same period last year. The company’s second-quarter profit benefited from lower operating expenses, helped by its focus on driving more traffic through paid ads and reducing the amount of money it had to spend on regulating content. Pinterest’s cost-cutting measures included laying off employees and streamlining operations, focusing on its core business of helping people plan events, search for products, or build home decor.
The company’s total user base of 250 million has also been a critical contributor to its recent earnings success, as it continues to add new people and generate ad revenue at a rapid pace. The company’s ad sales rose by 45% in the second quarter from a year ago, while its average ad price rose 67%.
Pinterest expects its top line to proliferate, though it will slow down some in the short term. It has a solid competitive advantage in the social media space, focusing on visual content and offering marketers a way to reach specific audiences. However, the company’s growth prospects are not without risks, including competition from rivals like Instagram, rising privacy concerns, and changes to how consumers use digital platforms.
Pinterest shares have risen over the past two weeks as investors have cheered the company’s improved profitability and ad performance. Investors will watch for signs that the company’s ad sales will accelerate in the coming months, likely boosting its share prices. A reacceleration of growth could also give credence to recent bullish analyst ratings, such as a “buy” from JPMorgan Chase. However, in the near term, any issues that negatively impact Pinterest’s user base or undermine its ad technology could hurt its financial performance. As a result, the stock’s gains may be limited.
Nevertheless, the long-term outlook is positive. Investors should consider adding the company to their portfolios, primarily if the stock trades at a discount. As of this writing, the author owns shares of Pinterest.
