Pinterest Inc. (PINS, Financial) held its first investor day event last week where it unveiled ambitious plans for the next three to five years. Despite a turbulent economic landscape last year that notably impacted digital advertising companies, the company has set its sights on achieving a compounded annual growth rate in the mid to high teens.
The company's proactive response to economic adversity includes a reduction in headcount and a series of strategic moves aimed at streamlining operations. These measures have not gone unnoticed, as Pinterest's stock price has already increased over 15% since the beginning of this year. Analysts are revising their ratings and price targets upward acknowledging Pinterest's compelling growth prospects, underscored by its remarkable user retention and untapped monetization opportunities. This reaffirms Pinterest's resilience and potential within the digital advertising landscape.
User engagement and advertising resilience
In its relentless pursuit of enhancing user experience and engagement, Pinterest has been deploying strategic features and products. This multifaceted approach includes video, shopping integration, creator tools and live events, all designed to capture and retain users. With over 450 million monthly active users, Pinterest's platform predominantly attracts a female audience with high purchasing power.
However, the platform's evolution has witnessed the emergence of new use cases, with year-over-year monthly active user growth rates of 27% in men's fashion, 22% in auto and 10% in travel. Its unique ability to foster positivity among users sets Pinterest apart from its peer social media platforms.
Trust and Positivity on Pinterest
One study revealed that eight out of 10 individuals turn to Pinterest to experience a sense of optimism—a stark contrast to the sentiment on many other platforms, where only three in 10 report the same positive sentiment. This underscores Pinterest's capacity to cultivate a welcoming and uplifting digital environment.
Importantly, Pinterest has instilled trust in its users, with an impressive nine out of 10 Pinterest shoppers expressing confidence in the content they find on the platform. This trust factor significantly outpaces that of its peers, boasting a staggering 70% higher trust rating. It is this level of trust that continues to be a driving force behind Pinterest's expanding user base.
Robust user growth and engagement
While user growth remains robust, it is the engagement metrics that have truly stolen the spotlight. In the second quarter of 2023, Pinterest reported a 14% increase in engagement, outpacing its user growth. Key metrics such as sessions, impressions and saves exhibited substantial growth across all regions, defying the conventional belief that user engagement lags behind user acquisition.
Exhibit 1: User Growth and Engagement Growth
Source: Investor Day presentation
Advertising presence and user engagement
Pinterest achieved these engagement milestones while increasing its advertising presence on the platform. This achievement highlights how well-targeted ads and user engagement go hand in hand, especially on Pinterest, where users are highly interested in commercial activities.
As the digital advertising landscape faces a looming transformation with Google's impending phasing out of third-party cookies in Chrome, Pinterest is poised to leverage its first-party intent signals as a key differentiator. Early indicators reveal a remarkable 45% increase in return on ad spend when utilizing Pinterest's first-party targeting signals, offering advertisers a compelling advantage. This is further substantiated by a noteworthy 33% increase in ad impressions and an 18% increase in the number of clicks during the second quarter.
Exhibit 2: Ad Performance Statistics on Pinterest
Source: Investor Day presentation
Pinterest's e-commerce evolution
Pinterest is now focusing on e-commerce to diversify its revenue streams. The company's strategic shift toward making the platform a more accessible shopping destination has yielded remarkable results. Central to this transformation has been the integration of shopping seamlessly into the core user experience, creating a more shoppable ecosystem.
Notably, Pinterest's forays into e-commerce have been met with resounding engagement from its user base. Over the past four quarters, engagement with shopping-related content across the platform's core surfaces has surged, propelling shopping ads revenue to exponential growth rates, far outpacing the company's total revenue growth.
Strategic partnerships and global expansion
Further expanding its horizons, Pinterest took a significant step by adding third-party demand partners, with the Amazon Ads platform being the pioneering collaborator. This strategic partnership signifies a well-aligned and mutually beneficial move for both Pinterest and Amazon (AMZN, Financial). At its core, this collaboration underscores the inherent value of advertising content and its potential to drive positive outcomes for Pinterest users.
This strategic shift aligns with a substantial opportunity in the digital advertising space, estimated at $550 billion. The lower funnel, where Pinterest increasingly monetizes, represents an ideal opportunity for capturing a substantial share of this spending. Moreover, core geographies, including the United States, Canada, Europe and the rest of the world, present underpenetrated markets with significant revenue potential.
AI-powered growth and global expansion
Pinterest's growth in the second quarter reflects a strategic blend of cutting-edge artificial intelligence initiatives, international expansion and a profound commitment to user satisfaction. This holistic approach has not only deepened engagement with existing users, but also attracted a new wave of users.
The company's artificial intelligence capability is at the center of this growth narrative, where relentless efforts in relevance and personalization have yielded positive outcomes. AI-driven personalization has yielded a 60% increase in saves per monthly average user, underlining the platform's capacity to deliver content tailored to individual preferences. Moreover, this commitment to enhancing user satisfaction has translated into a 30% improvement in ad relevance on the search feature year to date.
Next-generation AI capabilities
Pinterest's forward-looking approach is evident in its transition to next-generation AI capabilities, empowering it to leverage recommender models that are 100 times larger than before, as revealed during the recent earnings call. This leap in AI advancement has allowed Pinterest to combine first-party proprietary data with AI-based computer vision and search technologies. This has resulted in a substantial boost in perceived relevance for recommendations on related pins, with an increase of nearly 10 points in the past year, now standing at an impressive 94%.
Mobile app-centric platform
Pinterest's transformation into a mobile app-centric platform further fuels its growth trajectory. Mobile app MAUs were responsible for over 80% of the company's revenue and impressions in the last quarter.
Exhibit 3: Pinterest Mobile App MAU Over Time
Source: Investor Day presentation
In the U.S. and Canada region, mobile app MAUs registered solid 9% growth, showcasing an acceleration from the previous quarter. This shift toward mobile dominance aligns seamlessly with evolving user preferences and positions Pinterest to capitalize on the ever-expanding mobile ecosystem.
Takeaway
For well over a decade, Meta Platforms Inc. (META, Financial) has been the only social media company to attract consistent support from investors and Wall Street analysts. Today, Pinterest is emerging as a formidable player in the social media sector with the company's aggressive expansion into social e-commerce. The company is using AI technology to improve the navigation experience for Pinterest users as well, making its platform highly relevant in a crowded marketplace. Pinterest looks well-positioned to grow in the foreseeable future despite the possibility of short-term macro headwinds temporarily hurting revenue and earnings growth.
