Pinterest Still Has More Upside in Coming Months

Social media stocks are on fire. Pinterest (NYSE:PINS) is no exception. In fact, PINS stock has doubled just since July and its shares currently trade at their all-time highs.

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The latest cause of excitement is earnings from rival Snap (NYSE:SNAP). On Wednesday, SNAP stock surged 28% higher in a single trading session following its Q3 earnings that ran far ahead of expectations. How should investors in PINS stock view the Snap news and the situation more broadly?

Pinterest And Snap: Friends Or Foes?

On the same day that Snap stock soared 28%, PINS stock also jumped 9% and hit $50 for the first time ever. At first glance, this may seem odd. If Snap is attracting far more users and advertisers than expected, isn’t this bad news for Pinterest? There’s only so much time that people will spend on their screens every day, after all.

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However, there’s a bullish spin on this as well. For a long time, investors have feared that social media would become a winner-take-all arena with just one tech giant owning all the popular services.

The past year is disproving this idea. For one, TikTok emerged seemingly out of nowhere, showing that innovation is still possible. And now the rise of more niche services such as Snap and Pinterest are proving that users are happy to have more than one social network in their lives at the same time. Social media isn’t turning into a winner-take-all like search, for example, where Alphabet (NASDAQ:GOOGL) simply crushed each potential rival into smithereens.

In this case, it appears that Snap, Pinterest, and other such rising social networks can peacefully coexist. The bank analysts agree with that take. Both Bank of America and Goldman Sachs upgraded PINS stock on Wednesday following the Snap news. It seems that a rising tide will lift all the social media stocks.

Pinterest Is Having A Breakout Year

Pinterest hasn’t reported Q3 earnings yet. However, there’s good reason to expect a strong showing, as Snap has already done. It’d merely be a continuation from Pinterest’s great Q2 results after all.

After running monthly active user growth figures in the 20%-30% range for an extended period, the quarantine gave Pinterest a major boost. For Q2, Pinterest added 39% to its monthly active users tally. Importantly, Pinterest showed major international market growth as well. This put to rest the argument against the company that it wouldn’t ever gain traction outside the domestic arena.

And the news gets even better. The Q2 results were fantastic — PINS stock popped 25% following their release. However, that was even with a major blemish on last quarter. Due to the drastic economic slowdown, many advertisers suspended campaigns and thus Pinterest’s prices on ads plunged. Average revenue per user fell 11% in the U.S. and even more internationally given the advertising slowdown.

However, this should reverse in Q3. Just look at the Snap results from this week; things are heading higher again. While the economy is hardly making a flawless recovery yet, there are clear positive developments. This should allow Pinterest to benefit from both faster-than-usual user growth and a swift rebound in average revenue per user in Q3. Add it up, and Pinterest should report a big jump in profits and EBITDA in addition to more sparkling user numbers.

PINS Stock Verdict

At the beginning of January, I told Investorplace’s readers that PINS stock “should surge in 2020.” Even before Covid-19 entered the picture, Pinterest’s business was running much better than investors were giving it credit for. And now, in an ideal environment for social media stocks, Pinterest is finally having its moment of overdue success.

At this point, PINS stock isn’t nearly as obvious a pick as it was in January. But I’m sticking with Pinterest for now. As Snap’s recent earnings bonanza showed, the pandemic boost for social media is far from over. Let’s see how well Pinterest can capitalize on the upcoming quarter now that it’s attracted a far wider range of users and advertisers. And then, in turn, Pinterest should be able to roll this momentum into a fantastic holiday season as well. While PINS stock has run up a lot, there’s still more to look forward to for at least the next few months.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.