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Why Is Pinterest (PINS) Up 0.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Pinterest (PINS). Shares have added about 0.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pinterest due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Pinterest Beats on Q4 Earnings, Falters on Revenues

Pinterest reported mixed fourth-quarter 2022 results, with the top line missing the Zacks Consensus Estimate and the bottom line beating the same. The San Francisco-based Internet content provider recorded year-over-year higher revenues led by an increase in monthly active users and strong results in core and emerging verticals. However, sluggish demand trends in the advertising business and the adverse macroeconomic climate hurt the company's top-line performance.

Net Income

On a GAAP basis, the company reported a net income of $17.5 million or 3 cents per share compared to a net income of $174.7 million or 25 cents per share in the year-ago quarter. The significant fall in GAAP earnings, despite a top-line increase, was primarily caused by higher total costs and expenses induced by higher costs in the sales and marketing division.

Non-GAAP net income in the reported quarter was $203.1 million or 29 cents per share compared with $339.4 million or 49 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by a penny.

For full year 2022, Pinterest incurred a net loss of $96 million or a loss of 14 cents against net income of $316.4 million or 46 cents per share. Net income declined by 45% on a non-GAAP basis from $778.5 million in 2021 ($1.13 per share) to $426 million (62 cents per share) in 2022.

Revenues

Revenues in fourth-quarter 2022 rose 4% year over year to $877.2 million but missed the consensus estimate of $885 million. The top-line growth was affected by lower revenues in Europe (down 7%) on a reported basis to $123 million driven by foreign exchange headwinds. However, net sales witnessed 5% growth in the United States and Canada, rising to $722 million from $689 million in the prior-year quarter. Revenues from the rest of the world were $32 million, up 26% from the year-ago quarter. For full year 2022, Pinterest experienced a 9% top-line expansion with net sales increasing to $2,803 million from $2,578 million in 2021.

Pinterest witnessed growth in monthly active users (MAUS) during the quarter. The figure stands at 450 million globally, up 4% year over year. The uptick can be attributed to the company’s continued effort and investment in relevance and personalization of contents. The company witnessed a 14% increase in MAUs of mobile applications worldwide and monetized mobile application users contributed 80% to the company's revenues.

Along with the primary verticals, new verticals like travel, automotive, financial services and men's fashion performed strongly. However, the increase in net revenues, which is primarily driven by major U.S. retail advertisers and foreign markets, is partly mitigated by CPG advertisers and small and mid-market advertisers in the United States as they continue to confront challenges from the unfavorable macroeconomic environment.

In the fourth quarter, the global average revenue per user (ARPU) increased by 1% to $1.96 from the year-ago quarter’s figure of $1.93. The sluggish growth indicates the persistence of demand softness in the advertisement market. While ARPU in the United States and Canada increased 6% to $7.6, Europe witnessed a decline of 9% to $1.01 from $1.10 in the prior-year quarter.

Other Details

In the December quarter, total costs and expenses amounted to $871.3 million, up around 31% from the prior-year’s figure of $667.2 million. Cost in Sales and marketing surged 66% to $317.3 million. In the reported quarter, research and development expenses rose to $265.2 million from $240.8 million in the year-ago quarter. This quarter's spending increased year over year due to the company's ongoing investments in innovation, including mobile deep linking, entire page optimization, and improved measurement tools and its stronger brand marketing campaign. Also, higher taxes and bad debt expenses impacted the bottom line. Adjusted EBITDA was $195.8 million in fourth-quarter 2022, down from $350.9 million, as the company decided to reallocate its resources, cut back on hiring workers and close some of its underused offices.

Cash Flow & Liquidity

As of Dec 31, 2022, Pinterest had cash and cash equivalents of $1,611.1 million, with $178.7 million of operating lease liabilities compared with $1,419.7 million of cash and cash equivalents with $209.2 million of operating lease liabilities in the prior year. The company generated $469.2 million of cash from operating activities in 2022 compared to $752.9 million in 2021.

Outlook

Pinterest expects first-quarter 2023 revenues to grow in the low single digits on a year-over-year basis considering slightly lower foreign exchange headwinds compared with fourth-quarter levels. The company anticipates that non-GAAP operating expenses are likely to decline in low double digits percent sequentially as it does not intend to invest in a brand marketing campaign in the first quarter like it did in fourth quarter. The company also anticipates that the macroeconomic instability will continue to have an impact on its small, medium-sized business and mid-market advertisers, which will cause a weakening of demand from this market segment.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Pinterest has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Pinterest has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Pinterest is part of the Zacks Internet - Software industry. Over the past month, Aspen Technology (AZPN), a stock from the same industry, has gained 1%. The company reported its results for the quarter ended December 2022 more than a month ago.

Aspen Technology reported revenues of $242.84 million in the last reported quarter, representing a year-over-year change of +41.7%. EPS of $0.35 for the same period compares with $1.20 a year ago.

For the current quarter, Aspen Technology is expected to post earnings of $1.66 per share, indicating a change of +20.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #2 (Buy) for Aspen Technology. Also, the stock has a VGM Score of D.

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Pinterest, Inc. (PINS) : Free Stock Analysis Report

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