It seems to me that Pinterest (NYSE:PINS) has been lumped in with all the other stocks that benefited greatly from Covid-19. This includes Zoom Video Communications (NASDAQ:ZM) and Peloton Interactive (NASDAQ:PTON). Down more than 24% year-to-date through Sep. 29, it’s easy to see that PINS stock is struggling to find its way.
My suggestion to those buying stocks based on Covid-19: Find yourself a new hobby.
If Pinterest’s long-term financial health is dependent on a pandemic to drive revenues, then its business model isn’t worth much.
On the other hand, if you’re like me and see a bright future for the social media platform, it’s easy to look beyond 2020 and the benefits it gained from work-at-home employees.
Pinterest’s best days are still ahead of it. Here’s why.
PINS Stock and Covid-19
InvestorPlace’s Vandita Jadeja recently suggested that PINS stock could fall into the $40s in the coming months as its results over the next 2-3 quarters show a dip in user numbers, ultimately affecting its overall revenues.
As a result, she suggests waiting for it to hit rock bottom before buying. Well, I sure wish I had her crystal ball because I’ve never been able to time a bottom or a top for that matter.
However, it’s not my colleague’s belief that it has more losses in store for 2021 that’s caught my attention; it’s the fact she thinks Pinterest can’t thrive in a pandemic-free environment.
“Third quarter results could be volatile for the company as we will see a change in user behavior. A lot depends on the state of the pandemic and as we start to step out of our homes and return to normalcy, the use of social media could decline,” Jadeja wrote on Sep. 28.
“The Delta variant will not work for the stock because it has not brought our lives to a standstill. A lot of consumers have accepted the fact that the Delta variant is not as deadly and vaccinated individuals are going out and about in the State.”
I find it hard to believe that new users to Pinterest are only joining because they’re stuck at home.
Yes, I understand a segment of the population might have done many things during the pandemic they usually wouldn’t have. Still, my experience with people I know who use Pinterest is that it provides valuable examples of design ideas, etc. They’re unlikely to stop using it because people are no longer worried about Covid.
For example, my wife and her business partner are building an Airbnb (NYSE:ABNB) rental near where we live, right on the ocean. They came up with a wine-cooler idea from Pinterest. I could give you plenty more examples.
Why would somebody stop using a helpful resource because they can now go out into the world? They wouldn’t.
Pinterest’s task at this point is to keep reminding users about the inherent value built into its platform. If it keeps doing this, I don’t see a problem moving its U.S. ARPU (average revenue per user) higher than $5.08.
The World Is Pinterest’s Oyster
In investing, we have a term called home-country bias. That’s when investors overlook investments elsewhere in the world, opting to stay closer to home where it’s more comfortable.
While that’s worked quite well in the past decade, it won’t always be the case.
I can remember when everyone thought Netflix (NASDAQ:NFLX) was all tapped out for growth because its U.S. business had stalled.
In July 2017, CNBC ran the headline “Netflix US subscriber growth appears nearly saturated, says leading analyst.”
“In this country, I would say we’re getting closer to saturation, roughly 52 million subscribers. The company has talked about the market being 60 to 90,” Internet media analyst Anthony DiClemente told CNBC at the time.
Well, it had 73.95 million paid subscribers for the U.S. and Canada at the end of the second quarter, 430,000 less than in Q1 2021, but even with Q4 2020, and 1.05 million higher than a year earlier.
As Clemente said at the time, Netflix was scratching the surface internationally. In Q2 2017, it had 48.71 million paid subscribers. At the end of the second quarter this year, it had 135.2 million subscribers outside the U.S. and Canada.
It’s grown international subscribers by 178% over the past 16 quarters. Over those four years, its quarterly operating income has risen by 1,345% to $1.85 billion in Q2 2021 from $128 million in Q2 2017.
There might be ebbs and flows to Pinterest’s U.S. user metrics and revenue numbers over the next few quarters, but ultimately I believe what’s happened to Netflix will play out with Pinterest.
The world, indeed, is Pinterest’s oyster.
The Bottom Line
When I last wrote about PINS stock on Sep. 13, I said it was in the buy zone at $54. As I write this, it’s trading a few cents below $52. As my colleague said, it could fall into the $40s once it reports Q3 2021 in October.
It hasn’t traded below $50 since last October. However, I don’t think there’s any harm in waiting for the results to come out.
That said, if you’re evaluating whether to buy Pinterest based on what’s happening with Covid-19, you’re not a long-term investor.
I continue to like Pinterest over the long haul.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.