Pinterest shares fall after warning of slower revenue growth. Should Investors Buy Declining Stocks?

Stock prices of Pinterest (PINS 1.67%) have been hit since the company warned of slower revenue growth when it reported its second-quarter earnings results last month. The crash wiped out all of the stock’s gains for the year, and it’s now down more than 20% year-to-date.

Let’s take a closer look at the latest Pinterest results and guidance and decide if now is a good time to buy the dip.

Pinterest’s forecast disappoints

After seeing continued revenue growth over the past year, Pinterest’s overall growth has stabilized from a 23% year-over-year increase in the first quarter to a 21% increase in the most recent quarter to 854 million of dollars.

Growth was solid across all regions, with revenue up 19% year-over-year in the US and Canada to $673 million. European growth was even stronger, rising 25% to $143 million, while Rest of the World revenues rose 32% to $38 million.

Monthly active users (MAUs) also grew with a year-over-year increase of 12%, which was the same as in Q1. Once again, these gains came largely from outside North America, with MAUs up 9% in Europe and 17% in the rest of the world. MAUs in the US and Canada were up 3%.

While continuing to grow its user base remains important, Pinterest’s biggest opportunity is to better monetize its already large user base. The company did a solid job of this again in the second quarter, as evidenced by gains in its average revenue per user (ARPU) across regions. Overall, global ARPU increased 8% to $1.64. However, regional ARPU was much higher overall. This is because Pinterest has many more non-US MAUs, which carry much lower ARPUs. As such, it’s generally better to look at ARPU growth at a more regional level.

In the US and Canada, ARPU rose 16% to $6.85, while European ARPU climbed 14% to $1.03. For the rest of the world, ARPU rose 13% to $0.13.

In terms of profitability, Pinterest reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $180 million, up 68% year over year. Earnings per share (EPS), meanwhile, came in at $0.01 versus a loss of $0.05 a year ago.

Looking ahead, the company indicated that Q3 revenue would be between $885 million and $900 million, representing an increase of 16% to 18% year-over-year. He noted that growth will slow due to tougher comparisons as well as some currency headwinds.

While the company recently launched its new Performance+ suite of automation and AI services for advertisers, its guidance does not expect growth in the product in Q3 as it is still in the testing phase.

Image source: Getty Images.

Time to buy dip?

Despite the stock selloff, a number of positives emerged from Pinterest’s latest quarterly results and guidance. Regional ARPU growth remains strong as new users continue to join the platform.

Meanwhile, the company’s partnerships with Alphabet and Amazon show good signs of growth and contribute positively to revenue growth. This is especially true for its partnership with Alphabet’s Google, which helps it tap into international markets that were previously under-monetized or not monetized at all. Since the majority of Pinterest MAUs come from outside the US and Europe, improving the monetization of these users remains a huge opportunity for the company.

At the same time, Pinterest has driven a lot of innovation in recent years, both on the user side of its platform and for advertisers. Performance+ is the latest example of this and was designed to reduce the time it takes advertisers to create campaigns, as well as reduce costs and improve click-through rates. Ultimately, the better the results achieved by advertisers using the Pinterest platform, the better the company should perform in the long run.

Trading at a forward price-to-earnings (P/E) ratio of about 16 based on analyst estimates through 2025, Pinterest shares are very attractively priced following the recent selloff in the stock. The company is still growing strongly and is in the early days of better monetizing its large international user base.

PINS ON Report (before 1a) data by YCharts

Taken together, I would be a buyer of the stock on this dip as the long-term outlook for this growth stock remains attractive.