Pinterest: Can the CEO Get Them Over The Hump? (NYSE:PINS)

The Goal of This Article:

I believe Pinterest (NYSE:PINS) may have found the right leader who has the exact experience and mindset to get Pinterest “over the hump”. What do I mean by “over the hump”? The company has been very volatile regarding its profitability, monetization of its user base, and share price. For some time now the question in the market has been is Pinterest a social media company, an advertising company, or e-commerce company? How will the company capture future growth and profits? What investors do know is that Pinterest has a massive active monthly user base at 433 million, which if capitalized on correctly could yield large returns for all. So, does Bill Ready have the vision and plan to accomplish this? Let’s find out.

Where Has Pinterest Been? And Why a New CEO?

Currently Pinterest is over 54% from its share price just a year ago and 73% off its all-time highs reached in early 2021. Now you may be saying what growth stock isn’t over 50% from its all-time highs, and well you would be right. The company is relatively new to the public markets as it went IPO in April of 2019. Pinterest is trading today at -6% to its IPO price and is nearly 60% cheaper from its IPO price to sales ratio. So, as you can see the stock has been all over the place in just a short three years.

Now why did Pinterest bring in a new CEO? Many growth stocks have experienced extreme volatility from the pandemic era to the current outrageous inflation experienced globally. I believe that the previous CEO and co-founder Ben Silbermann and the board of directors knew the direction the company needed to go, and they needed someone with extensive experience in this area going forward. You can read the new CEO Bill Ready’s first shareholder letter and see there is a specific theme and focus moving forward.

Who is Bill Ready and Where is His Focus?

Bill Ready became the new CEO of Pinterest on June 29th of this year and comes with over 14 years of commerce and fintech experience. Bill was the President of Commerce at Google (GOOG) for the last two years and prior to that was the EVP & Chief Operating Officer at PayPal (PYPL) and was with the company for seven years. Bill was the CEO of Braintree which in 2011 was one of the fastest growing companies in America and was the payments services company that strategically purchased Venmo in 2012 for $26.2 million. It was very soon after PayPal purchased Braintree, and Bill advanced through the ranks at PayPal.

Needless to say, Bill has much experience in the commerce and fintech arena and was drawn to Pinterest because of its unique position in the market. Here are some very specific comments from Bill at the Goldman Sachs Communacopia + Technology Conference this past September, that investors should read.

“The fact that Pinterest has inspiration and intent in the same place, I think is quite unique. And it’s a place that you see that on the platform today, but a place where you have a lot more opportunity to leverage.

I think the second thing I’d call out, is that when you think about the use cases on Pinterest, the use cases are quite unique, very different from other platforms. And the user base that engages with those is a really attractive user base in terms of like the demographics that you get, what that can mean for advertisers. So I think that is quite interesting as well.

So there’s still a lot of opportunity, a lot of leverage left in those things. And so I think that’s a part of what our focus is, how do we drive more execution, more leverage around these unique aspects of the platform. But I think those are phenomenally unique attributes to Pinterest, and with a lot of headroom left to go on what we can do with those.

So I’ll give a tangible example of that, which shopping, we have more than half the people on Pinterest that are there to shop, right? So people are already on Pinterest to shop. People on Pinterest discover a tremendous amount of what they’re interested in, from a shopping perspective on Pinterest. But when they find the thing that they were interested in on Pinterest, what do they have to do next? They tend to copy and paste the description, they copy description on Pinterest and then go paste it into the search bar someplace else.

What we can go and give the user the ability to now take action on that directly on the platform, which by the way doesn’t have to be a checkout on the platform, even a link and a high quality handoff to the retailer, the place that’s being sold, that’s solving a real pain point for the user, and should not only drive engagement, but it’s a highly monetizable event as well. So I think that’s one category of like, what we need to execute on, is like, taking that inspiration and intent to action.

I gave shopping as an example that, I think it’s also the case that there’s a lot more that we can do, to go drive home the uniqueness of the platform, not just for users, but for advertisers as well, I think we’re in a very unique place in terms of the full funnel, the full funnel journey of the user, and what we can do for advertisers in terms of helping the advertiser meet the user, in this really sort of magic moment in the funnel, where the user hasn’t — the user has an intent. They’re looking for a new outfit, or a new sofa or redesigning a room, but they haven’t decided what to buy yet.”

What I took away from his comments at this conference was Bill recognizes that there is a special synergy that can be capitalized on if done right with enabling pinners to start a business of commerce on the platform, accelerate those who already do, and providing higher conversion rates for advertisers. I don’t believe the former CEO Ben Silbermann had the experience in commerce & fintech to fully maximize the synergies between the users, businesses, and advertisers on Pinterest.

This is not an easy task to do but Bill’s vision and discipline in how he wants to run the business should give confidence to shareholders he may be able to accomplish this. I want you to read below what Bill and his CFO Todd Morgenfeld said when asked about the future vision of Pinterest and their investments.

Goldman Sachs Interviewer:

“Got it. Okay. And on the on the last earnings call, both of you sort of emphasized the theme that Pinterest against that potential end state is clearly in an investment mode right now. Help us understand what you guys see as the mission critical investments to realize that potential or to move us along that point from today to the future vision.”

Bill Ready, CEO of Pinterest:

“Yeah, I’ll give a brief overlay and talk and address some of this on how we think about modeling these things. But to be very clear, we were not growth at all costs. We’re not just here to build good products, we’re here to build a good business, and we have a good business. I think this is like what attracted me to Pinterest. It’s a good business that has generated margin and generated cash flow in this past year, where this year has been an investment year, but we want to get back to how we drive improving margins and those kinds of things. Todd and I both talked about it. I’ll give it to Todd to share more of our thoughts there.”

Todd Morgenfeld, CFO of Pinterest:

“Yeah, I think it’s a good call out. I mean, we didn’t want to offer a lot of specific guidance for 2023 on the last call, because we’re still in the summer. We’re at that point, and we were looking out during a very pretty uncertain period right now. So we weren’t necessarily making a guidance call for next year. It was a philosophy point. And the thing that Bill just said is an important — that is the message we were trying to convey. This is not a growth at all costs mentality type company, number one.

Number two, we laid out pretty specific long term margin targets, at the time we went public. We blew through those targets in 2021, saw some opportunity to reinvest in the business to position the company for longer term growth this year. And certainly, we expect to see return on that investment. We’ll see it in terms of top line growth. And if we don’t, there are other things we can do to drive margin expansion. But we know we’re stewards of the investors’ capital, and we need to drive returns over time.

So I think that was the message that we were trying to convey on the calls, that we’re not a growth at all cost company. And we want to see some margin improvement based on returns on the investments we’ve made this year.”

I am excited to hear and read that CEO Bill Ready and CFO Todd Morgenfeld are very focused on activating and growing the commerce capabilities of Pinterest between the users, businesses, and advertisers. However, they are not willing to invest in growth at all cost, but to ensure they have growing margins that result in better profits and returns for shareholders! This is the type of language and communication you want to hear from a CEO and CFO of business you are invested in.

What Will We Know by June 2023? And am I Buying?

Pinterest is experiencing decelerating revenues and margins overall this year due to the challenges of macroeconomics and inflation. The company’s margins are also depressed due to choosing to make 2022 their year of investing in growth. The (Forward) Price to Sales Ratio still has Pinterest more expensive than commerce competitors like Etsy (ETSY), Amazon (AMZN), Google, and others. So these are some of the risks investors have to ask themselves, do they believe CEO Bill Ready and team can make up ground in the back half of 2022? which is the busiest time for e-commerce. And can Pinterest unlock the potential monetary synergies their unique platform offers where customer inspiration and intent meet at the same place?

There is a lot of upside and growth opportunities in the TAM of the other countries Pinterest services besides the U.S., Canada, and the U.K. There also is still this lack of male adoption for the platform with only 15% of its user base being male. So there is massive upside to uncover if they could drive this number higher. This is a challenge the company has dealt with for some time so I would not make this your number one catalyst for reasons to invest.

We will also know by June 2023, what Bill Ready has accomplished in his first year as CEO and what progression towards his commerce vision has the company accomplished and is positioned for the future. Pinterest has $0 Debt and over $2.5 billion in cash, giving them a long runway to invest back into growth strategically without sending the company into dangerous waters.

I believe there is still much for Pinterest to demonstrate to show it has climbed past the “top of the hill” into consistent profitability, and high double digit growth and being generated from a commerce perspective. Pinterest is well-positioned at the moment with their strong balance sheet, new CEO leader, and clear direct vision, but I am holding here to see more execution, before buying more shares.