Pinterest stock threatens to make sharpest drop ever as pandemic recovery weighs on user growth

Pinterest Inc. served as a virtual refuge for those trapped at home during the worst of the pandemic, but as the world reopens, the company is having a harder time keeping users interested in its platform.

The company saw its monthly active users (MAU) decline sequentially in the second quarter as it reported 454 million such users, well below the 482 million analysts tracked by FactSet had estimated.

That weighs on Pinterest’s PINS,
Friday, as they were down 18.90% in morning trading and on track for their biggest single-day percentage drop ever. So far, the stock’s strongest decline was a 18.66% drop on March 16, 2020.

The latest results, released Thursday afternoon, led to at least two downgrades from Wall Street analysts.

“Yes, Pinterest saw the biggest relative boost to its user base from COVID and so is facing the toughest ‘engagement compositions’,” wrote Evercore ISI’s Mark Mahaney. “However, we felt that with an improved user experience and an overall strong discovery/performance value proposition, Pinterest would have been able to more successfully sustain the increase in users coming to the platform during the COVID crisis.”

In the US, Pinterest had 90 million monthly active users as of the Q1 2020 report, before growing to 98 million in Q3 2020. The company dropped to 91 million US MAUs in the last quarter.

“There is now an open question as to whether PINS is at risk of maturation in its lead market, the US,” Mahaney wrote. He downgraded Pinterest stock from outperform to in-line and lowered his price target from $98 to $60 in a note with the email subject line: “In this company, the user is (almost) always right.”

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JP Morgan analyst Doug Anmuth was also more concerned about the stock’s potential after the report. He not only pointed to the sharp lack of user numbers, but also emphasized the company’s plans to focus the platform more on video and Idea Pins, a type of content driven by the creator.

“Idea Pins can be successful over time, but in the short term we think they pose a greater risk as users have to switch from grid format to streaming, and richer video content may not work as well in all categories,” he said in a note to customers. “We believe PINS could also lose some of its differentiation as it will compete for content for creators with some other major platforms.”

Anmuth downgraded its rating on the stock from overweight to neutral and lowered its price target from $95 to $68.

Others were more patient. Wedbush analyst Ygal Arounian wrote that most of Pinterest’s MAU drops come from the desktop platform, and that mobile users are “more engaged and earn more money” than desktop users.

“While the near-term growth trajectory is slowing down here, and stocks are likely to need more clarity around users to really start working again, with expectations and multiples reset, and our continued positive long-term vision of Pinterest as a differentiated platform, we reiterate our outperform rating,” he wrote, lowering his price target from $91 to $70.

Shares of Pinterest are down 12% in the past three months, though they are up 132% in the past 12 months. The S&P 500 SPX,
has increased by 4.5% over three months and by 35% over 12.