Pinterest Reports Strong Q1 Earnings, Despite Underlying Challenges
Pinterest (NYSE: PINS) experienced a notable increase of 12.39% on May 12, following a surprising Q1 earnings report. The report highlighted impressive numbers, with revenue exceeding forecasts, user growth reaching an all-time high, and margins improving—all in a period usually characterized by sluggish digital advertising performance.
Despite this upward momentum, the stock remains significantly below its pandemic-era peak. Although Pinterest has enjoyed gains this year, it is still trading over 20% lower than it was at the same time last year. This raises the question: Is Pinterest undervalued? Let’s delve into the details.
Strong Quarter Amidst Traditional Weakness
Typically, the first quarter is a slow time for ad-based companies due to the post-holiday lull and budget resets. Yet Pinterest defied expectations.
Image source: Getty Images.
Revenue grew by 16% year-over-year, totaling $855 million. Monthly active users (MAUs) increased to a record 570 million, reflecting a 10% rise. While the earnings per share (EPS) slightly missed estimates, costs grew at a slower rate than revenue. Importantly, Pinterest reported a GAAP net income of $9 million, a turnaround from losses in the same quarter last year.
In summary, Pinterest not only expanded but also enhanced its operational efficiency, translating growth into profit.
Global Monetization Efforts Paying Off
Pinterest’s financial improvements are closely tied to its global business expansion. Interestingly, the most impressive growth in Q1 came not from the U.S. or Europe, but from the “Rest of World” segment, which remains the fastest-growing yet least monetized part of its business.
|
Region |
Monthly Average Users (Millions) |
Average Revenue Per User (USD) |
Revenue Growth YoY |
|---|---|---|---|
|
U.S. & Canada |
102 |
6.54 |
+12% |
|
Europe |
148 |
1.00 |
+24% |
|
Rest of World |
320 |
0.14 |
+49% |
Data source: Pinterest Q1 2025 earnings report.
In the “Rest of World” segment, monthly average users rose 14% to 320 million, and average revenue per user (ARPU) increased by 29%. Consequently, revenue in this region surged by 49%, outpacing growth in other markets. Although it currently accounts for only 5.3% of Pinterest’s total revenue, its growth potential is significant.
Should Pinterest successfully bridge the monetization gap internationally, this segment could become a key player in the company’s growth. To illustrate: If “Rest of World” achieved half of Europe’s ARPU, it would contribute an additional $13 million in revenue this quarter, surpassing even U.S. and Canadian figures.
Advancements in AI-Powered Advertising
The jump in ARPU can be attributed to Pinterest’s emphasis on user intent and improvements in its advertising system. CEO Bill Ready highlighted this dynamic during the Q1 earnings call, noting that users visit Pinterest not just to make purchases but to gather ideas, which provides advertisers with deep insights into user intentions.
Pinterest’s Performance+ ad suite harnesses this user behavior, leading to better results that outperform traditional campaigns in 80% of A/B tests. This means advertisers are achieving more conversions more easily, unlocking potential from previously under-monetized users.
While adoption of this platform is still in the early stages, Q1 shopping ad revenue grew over three times faster in Europe and the “Rest of World” segment compared to the overall revenue growth. For a platform with so many under-monetized users, this progress is promising and highlights how AI-powered monetization can boost Pinterest’s growth prospects.
Valuation Shows Potential Upside
Pinterest’s trailing P/E ratio is around 12, placing it below many social media peers such as Meta, which has a P/E of about 25. Despite record user engagement, improving margins, and a growing base of monetizable users, Pinterest is trading at a discount. Moreover, the company is working on reducing costs while remaining profitable, increasing its operational efficiency.
While Pinterest shows promising momentum, it faces substantial risks. Stricter privacy regulations in Europe could hinder the effectiveness of targeted advertising. Additionally, a potential contraction in advertising budgets due to weaker economic conditions or high interest rates could pose challenges. Performance+ remains a fresh initiative that still requires thorough testing. Despite these risks, Pinterest’s robust first-quarter performance suggests that careful management can keep the company on track for continued growth.
Overall, Pinterest’s growth narrative is compelling. With a swelling user base, strides in monetization, and a valuation offering substantial upside, there appears to be long-term potential. For investors with a multi-year outlook, investing in Pinterest may be worthwhile.
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Steven Porrello has no position in the stocks mentioned. The Motley Fool has positions in and recommends Pinterest, with a disclosure policy in place.
The views and opinions expressed herein belong to the author and may not represent those of Nasdaq, Inc.
