The company, headquartered in San Francisco, operates with a unique business model: it sells advertising space to marketers to showcase their brands and products on the platform. In contrast to social media platforms like Instagram (IG) and Facebook (FB), 465 million users visit the site less frequently to connect with friends. Instead, their primary objective is to find inspiration for home renovations, discover new cooking recipes, or stay updated on the latest fashion trends.
This unique niche has helped the company gain a loyal following among female consumers, who tend to drive more e-commerce spending than men do on the app. However, after the pandemic waned and people began returning to regular routines, the app saw its user growth slowdown. This slowed down the growth of its average revenue per user, or ARPU, which is a crucial metric for consumer internet companies.
That’s a significant reason Pinterest has struggled to keep pace with a rebounding digital advertising market. In addition to sluggish growth in its user base, the company faces stiff competition from more prominent social media players like Meta and Alphabet as they fight for advertisers’ ad budgets.
Pinterest’s rocky path to profitability hasn’t gone unnoticed by investors and analysts. The stock has slumped about 30% since its 2020 IPO and is trading near its lowest level in over a year. Despite the disappointing results, the company has taken steps to improve its monetization and expand internationally. Its chief executive, Bill Ready, most recently oversaw Google’s commerce and payments business, having previously run PayPal’s Braintree unit.
In the past two years, he’s introduced tools to help creators and brands make their content more attractive to users, including idea pins, allowing them to display a product description with a link to purchase it. He’s also focused on making the platform more valuable to shoppers and making it easier for businesses to upload their products and add them to search results.
The company’s efforts have been lauded by investors and analysts, with just under half of the 33 analysts who cover the stock rating it a buy or overweight. In a note last month, Wedbush analyst Scott Devitt said that the company has “increased ad product offerings and is investing in improving monetization” as it continues to grow its global user base.
Nevertheless, the weak forecast sent Pinterest shares down more than 9% on Thursday. But they pared losses in extended trading after CEO Bill Ready announced an ad integration deal with Google, allowing it to place ads across the Google Ad Manager platform. This could boost ad revenues on the platform, especially in international markets where it’s under-monetized. The partnership is expected to go live in the second quarter of 2023. It will let advertisers on the platform place ads directly against their creatives and will be available globally for all users.