Pinterest (Nasdaq: PINS) released strong Q4 results that exceeded expectations by a significant margin. Pinterest has been one of the best-performing stocks since the stock market bottom in March 2020. It bottomed at $10.10 and made a high of $86.49 following its Q4 results.
Inside the Numbers
In Q4, Pinterest reported earnings per share of $0.43, while analysts were looking for $0.32. Revenue came in at $706 million vs $645.6 million expected. This was a 67% increase from last year.
Monthly active users also topped expectations at 459 million vs. 449.4 million. Of these, 98 million active users were in the US which represents 11% growth. Another important metric was the average revenue per user which was $1.57 vs. $1.44 expectations.
International revenue also came in stronger than expected at $123 million for a 145% gain. This is expected to be a big growth driver as the company has primarily focused on the US until now. International users increased by 46% to 361 million.
In its conference call, the company said that it saw increased engagement due to the pandemic with people spending more time online and increased online shopping. Out of all the social networking websites, Pinterest has the most logical path to monetization given that users are often pinning products to their pages. As a result, shopping ad revenue sharply increased with six times more businesses advertising on the platform.
Pinterest's guidance also came in better than expected as it expects 70% revenue growth next year. Other measures such as average revenue per user, EPS, and user growth projections also topped analysts' forecasts.
Stock Price Outlook
This type of performance and momentum validates Pinterest's more than eight-fold gains in less than a year. Other social networking websites have also posted better than expected results as online advertising rates continue to improve. But for Pinterest, the ad experience is much less intrusive than other websites where users often skip over them.
Like many tech stocks, Pinterest had been range-bound from November to February, trading between $60 and $70. Ultimately, this was a healthy development for the stock as it was able to digest previous gains and relieve overbought conditions. Earnings-fueled breakouts from these types of bases have a much better chance of sticking.
Looking forward, the question for investors is how much of Pinterest's good news is priced into the stock. It's making the turn from unprofitable to profitable which gives it a forward p/e of 127. While this is quite expensive, Pinterest can justify this price if it can keep growing and increasing average revenue per user.