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Why $PINS Plummets & $SNAP Summits with Nikki Dunn

FEATURING SHE TALK FINANCE’S, FOUNDER, NIKKI DUNN @shetalksfinance

Pinterest (PINS) and Snapchat (SNAP) shares have been pretty great performers over the past few years in the social media space.

A recent earnings season however, is starting to show a clear divergence in how the market is perceiving these two companies. While Snapchat has enjoyed modest gains after its latest earnings release, Pinterest has done the exact opposite, being down after its report.

What’s interesting about all of this, is that these companies both continue to grow revenues at just about the same rates! Pinterest has even slightly beat Snapchat’s revenue growth rates at times (including for the latest earnings report).

Pinterest has also been growing average revenue per user (ARPU) in a healthy way.

These two companies once moved in lockstep in terms of EV/R (enterprise value to revenue). However, a clear divergence is starting to form between the two companies’ valuations, with Pinterest’s valuation compressing.

There are a few reasons for this shift and loss of investor enthusiasm: Pinterest’s user growth and a shift to more video content at the expense of revenue. 

As of their most recent quarter, they’re seeing users decline quarter-over-quarter (still growing year-over-year). However, management attributes this loss to less profitable desktop users. Fortunately for management, this is backed up by their ability in the recent quarter to increase average revenue per user (ARPU) in spite of a reduced user base.

Pinterest's ($PINS) Average Revenue Per User (ARPU)

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Pinterest is also trying to makeover it’s platform. It knows that in order to compete with Snapchat, Tik Tok and Instagram, they need to incorporate more video content, and get users to engage more with their app! (Can they turn monthly active users into daily active users?)

They also have their eye on the in-app shopping prize. The idea is to be the regular place to go for ideas, inspiration, and shopping to turn those ideas into reality for pinners. 

However, in order to do this, they have to show more video content on user homefeeds and try to increase engagement, which will take away profitable advertising space.

Pinterest management has made it clear though, this is supposed to be temporary pain for a long-term gain.

They also have the cash position (and recent bump in free-cash-flow thanks to the pandemic), to execute on these changes.

Pinterest ($PINS) Free Cash Flow Vs. Cash & Equivalents (Quarterly)

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So, if Pinterest can pull off an app makeover that helps them continue to run a lucrative ads business, this could start showing some value the more price sells off.

Management still has a lot of work ahead of them, but, if they play their cards right to differentiate themselves among the video social platforms, Pinterest could earn back some multiple expansion.  

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Nikki Dunn, She Talks Finance, Founder

Nikki Dunn is a CERTIFIED FINANCIAL PLANNER™ professional and investor with a passion for helping people learn how to manage their money better.

After achieving financial freedom through entrepreneurship and investing, she created She Talks Finance, a financial education platform geared towards helping women learn about money & investing.

She is also co-host of the We Talk Money podcast, which helps do-it-yourself investors navigate the markets better. 

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