Buy This Unique Social Media Company Before The Next Bull Market

A major reason why many investors have avoided pinterest (LEGS -0.77%) over the past year was that the user base was shrinking, terrible for a growing young company. However, its Q3 2022 earnings report showed evidence that the worst for Pinterest was over, with user growth returning.

Also, some now see a sizable upside once the economy picks up. So the question for investors is, should you buy or avoid the stock, given the persistently poor economic environment?

Suppose you have a long-term mindset; now could be the time to buy Pinterest, a stock significantly below its all-time high. This is why.

Pinterest ads are very effective

Many call Pinterest a social media company when it’s more of a visual discovery engine for finding ideas. As a result, people use the platform differently than other social media websites, and its advertising is a unique animal.

People go to platforms like metaplatformFacebook and Instagram, Nap‘s Snapchat or TikTok to connect with people and share entertaining images or videos. But many people find that the ads on most social networking websites are distracting, making them less effective. On the other hand, many people come to Pinterest for shopping ideas with the intent to buy, and users react to their ads differently.

Pinterest ads come in the form of what the company calls Pins. Each advertiser pays for placement in areas where people are likely to see them: the target user’s home feeds and search results. Since many people on the service search for Pins organically, the ads are less intrusive and advertisers see more favorable responses. For example, statistics show that Pinterest shoppers spend 80% more than users on other platforms and have a 40% larger cart size. Pinterest, at 2.3 times the cost per conversion, is also more efficient than ads on other social media sites, with twice the return on ad spend for retail brands. These statistics mean that Pinterest ads cost less and are more effective.

Pinterest is also preferred by many advertisers because it can effectively address different types of ad campaigns throughout the sales process. For example, you can run brand awareness campaigns, drive consumers searching for products to an advertiser’s website, and guide purchasing decisions. This broad versatility in addressing the different needs of advertisers provides a significant opportunity to increase their market share within the $600 billion digital advertising market.

Created to recover from a terrible macroenvironment

Pinterest has gotten through this bear market by doing more than just sitting around doing nothing. Instead, Pinterest spent 2022 investing heavily in initiatives that drive long-term, sustainable growth.

One initiative includes increasing customer engagement, which is accomplished by expanding and enhancing the platform’s image and video content. Another growth strategy creates more relevant user experiences, especially for Gen Z, by using machine learning to find and recommend more relevant content for users.

Management attributes its return to seasonal sequential growth in US and global users in Q3 2022 to these growth initiatives. In addition, it is gaining traction with Generation Z, with growth accelerating since the second quarter and showing double-digit year-over-year growth. Therefore, the company has prepared for future user growth, especially as the economy recovers. In addition, it plans to return to important margin expansion next year and has already begun to streamline costs.

Finally, despite the economic downturn, it still grew revenue by 8% in the third quarter, has a strong balance sheet with approximately $2.7 billion in cash and no long-term debt, and continues to generate strong free cash flow . Management designed this company to survive a recession while delivering strong revenue growth and profitability.

A word of caution

The Wall Street Journal reported that Goal now faces huge fines for violating Europe’s General Data Protection Regulation (GDPR) privacy law. Additionally, the EU could force Facebook and Instagram to change their terms of service that require users to accept ads based on their digital activity. Time It is unknown how this news affects Pinterest today, an adverse ruling could eventually negatively affect how investors value Pinterest, a risk you should be aware of.

However, despite the shrinking user base during the pandemic recovery period, Pinterest increased revenue, a sign that the platform is attractive to advertisers and can monetize users faster than the growth of users. Now that the company appears to be on the verge of ramping up user numbers again, it could be an excellent time for long-term growth investors. get up some actions. This is a solid consideration as Pinterest sells at a asking price of 5.9, close to its lowest as a public company.

Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Rob Starks Jr. He has positions on Pinterest. The Motley Fool has positions and recommends Meta Platforms and Pinterest. The Motley Fool has a disclosure policy.

Leave a Reply

Your email address will not be published. Required fields are marked *