This article is proudly sponsored by the Business Ethics Team at the University of Texas at Austin!
About Pinterest
We’re not trying to date ourselves or anything, but honestly, what even is Pinterest?
When we think of Pinterest we think of some website where one can aimlessly scroll and look at fancy cakes and other recipes or specialized clothing that spectators then attempt to emulate for themselves and they are either immensely successful or end up being a “Pinterest Fail.”
At first glance, it’s basically just a digital platform filled with colorful pictures and videos.
So what?
How does the company even make money from that?
First and foremost, to a certain degree it doesn’t really matter if we like it or even get it, but if it’s a good business and others like it and are subsequently playing a role in beefing up the company’s total annual revenues, who are we to complain?
With respect to how this San Francisco, California-based company makes money, it is mainly from advertising, having something called “promoted pins” where those with business accounts with Pinterest can advertise whatever it is they want to sell on the platform and Pinterest subsequently charges a fee for this service.
It’s very similar to Meta Platforms and Google in the sense that a staggering amount of its total annual revenues are generated through advertising.
While we’re not initially thrilled by this business model, as it’s been seen time and time again how seasonal advertising can become and we prefer considering investments in companies with consistent revenue streams that are largely unaffected by greater overall economic fluctuations, let’s give this company a chance.
In fact, Pinterest could have exceptionally strong or consistent numbers that we just don’t know about but we will momentarily.
Pinterest’s stock financials
With a $16.4 billion market cap, a share price of around $24 and no annually distributed dividend nor a readily available price-to-earnings (P/E) ratio displayed on TD Ameritrade’s platform, all of this really adds up given that Pinterest is a larger player in the technology sector and more specifically, digital visual marketplace space and thus is practically tasked with reinventing itself quite often and has to dedicate a lot of capital in doing so, especially to stay current with the ever changing consumers that use its platform.
It’s also just become commonplace at this point for larger technology companies to not issue dividends for a handful of reasons discussed in previous stock analysis articles.
As it relates to the overall condition of the company’s balance sheet, Pinterest’s executive team is in charge of almost $3.9 billion in terms of total assets as well as $581 million in terms of total liabilities.
Suffice it to say we did not expect this to be the case and we’re definitely not complaining.
Namely, the sheer total asset-total liability breakdown for this company is very encouraging, as it has a fair amount of cash and cash equivalents with which it can pursue share buybacks, pay down some of its outstanding debts (which thankfully appears to be minimal to begin with), pursue acquisitions or reinvest in itself and its current underlying business(es).
Although none of this is bad, per se, we would like to see Pinterest put some more of its capital to work and not be so heavy in cash, as by virtue of having a considerable amount of cash it has, from our perspective, become somewhat of a takeover target, which could lead to proxy battles aplenty and ugly publicity for the company which could undoubtedly lead to a decline in share price fueled by spooked investors selling their shares.
But again, that’s just us being slightly picky.
We just want to make sure this company puts some more of its cash to work.
Moving onto the company’s income statement, Pinterest’s total annual revenues since 2018 have increased on a year-over-year (YOY) basis, starting this journey at $756 million in 2018, around $1.1 billion the following year, almost $1.7 billion the next year, almost $2.6 billion in 2021, all the way up to its latest reported figure of $2.8 billion, as reported in 2022.
While this, to us, is impressive by itself, what we are more interested in knowing is how much cash (if any) did this company have to burn through just to achieve these figures.
That, my friends, can be determined by some of the figures displayed on the company’s cash flow statement.
Speaking of the cash flow statement, Pinterest’s net income since 2018 has been negative (but not by an alarming amount, thankfully) each year except as reported in 2021, as it was reported as a cool and positive $316 million, which can more likely than not be a result of Pinterest cutting back its expenses paired with the heightened traffic the platform received when many were home the previous year due to COVID-19.
Thankfully, it can also be found (on the cash flow statement) that the company’s total cash from operations were positive each year excluding 2018, where its total cash from operations sat at -$60 million, however, climbed the following year to $1 million, $29 million the next year and $753 million the next.
This company seems to be on the right track, all things considered from the cash flow statement.
Pinterest’s stock fundamentals
From the perspective of the company’s displayed trailing twelve month (TTM) net profit margin, it isn’t there quite yet for Pinterest, however, this is far from uncommon for technology companies, especially those that depend heavily on generating revenue through advertising, which, again, has proven itself to be all too cyclical.
Regardless, according to TD Ameritrade’s platform, Pinterest’s TTM net profit margin is down but not out at -10.58% to the industry’s average of 17.55%.
Over time, as Pinterest gets closer and closer towards generating consistent net income and total cash from its operations over the next few years and decades, we fully expect this company’s TTM net profit margin to become much more competitive with industry’s cumulative average and think patience is not only warranted with this one from a TTM net profitability standpoint, but required, since, again, it focuses a considerable amount of revenue generation through one non-recession proof avenue; advertising.
Nevertheless, also according to TD Ameritrade’s platform, Pinterest’s TTM returns on assets and investments lag behind the industry’s averages by a similar margin with that of its aforementioned TTM net profit margin.
Should you buy Pinterest stock?
It is our opinion that one of the things Pinterest should focus on is mildly diversifying its streams of revenue.
Perhaps, if they aren’t already, the company’s executives should look into ways (or more ways, ethically, of course) to monetize its user data and generate an increasingly larger portion of its annual revenues through this more recession resistant venue.
It’s simply not enough to be a platform that millions scroll through if you’re not monetizing the platform in every way you can in order to close some of the aforementioned gaps.
However, given the strong state of Pinterest’s balance sheet, its growing total annual revenues, its positive prospects surrounding its total cash from operations and net income, it would be best if we gave this company’s stock (NYSE: PINS) a “hold” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.