Pinterest Prospers From AI Boosting Shop-Ability and Relevance

Key Points

• Pinterest grew its monthly active users by 12% to 518,000 in Q1 2024.
• Pinterest drove its platform's highest user and revenue growth since Q1 2021.
• Adjusted EPS more than doubled in Q1 2024, and adjusted EBITDA margin rose 1,100 bps to 15%.

Social commerce platform Pinterest Inc. NYSE: PINS shares are climbing towards 52-week highs on the heels of a spectacular Q1 2024 earnings report. The rebound in the advertising market, coupled with its artificial intelligence (AI) powered personalization and shop-ability effects, bolstered the company's revenue growth and monthly active users (MAUs). Pinterest has also scaled up its third-party partners, such as Amazon.com Inc. NASDAQ: AMZN and Alphabet Inc. NASDAQ: GOOGL. 

The resurgence in ad spending has been reflected in the performance of other computer and technology sector companies like Snap Inc. NYSE: SNAP and Google.

Revenue Growth Drivers

Pinterest brands itself as a visual search and discovery platform. Users visit the site to get lifestyle, home, fashion, hobby, meal and activity ideas and lists. The platform also provides relevant purchase options.

Pinterest has stated that four drivers can bolster its revenues:

1. Grow users and deepen engagements per user.
2. Increase ad load by driving the synergies between the user's commercial intent and relevant ads.
3. Execute on its lower funnel revenue opportunity.
4. Drive demand through third-party resellers, partners and international markets.

Using AI to Drive Personalization and Relevance

Pinterest has long stated that personalization is a growth driver. The company has aggressively implemented next-gen AI and large language models (LLMs) to improve user experiences. It has also transitioned from CPU to GPU, enabling it to serve 100x size models.

For example, its recommendation models originally focused on delivering content to drive greater viewing times in the immediate moment. With AI implementation, the focus is on user intent, helping to incorporate proprietary signals in its recommendation models to satisfy intent and optimize the depth of engagements. This includes driving more actual outcomes like clicks, conversions and saves and helping users navigate their inspiration-to-action journey.

A Positive Alternative to Traditional Social Media

Pinterest is known as a positive, non-confrontational, non-controversial, unintrusive and non-political platform. As such, it’s quickly becoming a positive alternative to traditional social media. This is evidenced by the accelerating growth of Pinterest's monthly users, most of whom are joining through the mobile app.

Gen Z is Pinterest's fastest-growing demographic, representing 40% of its 518 million global users. Its Gen-Z users rate Pinterest high on promoting and preserving well-being metrics like bellowing, self-worth, and purpose compared to other social media sites. This has resulted in the rare phenomenon of aging down, i.e., bringing younger users to the platform.

Daily Descending Triangle Breakout

PINS formed a descending triangle breakout pattern. The descending triangle commenced at $41.80 on February 6, 2024. Shares sold off to the $33.52 flat-bottom lower trendline. The descending trendline capped the bounce attempts as PINS moved closer to the apex. PINS broke down on April 15, 2024, as shares sank to a new swing low at $30.56 on April 25, 2024. Shares recovered to the flat-bottom trendline level heading into its Q1 2024 earnings release. PINS gapped up to $37.91 following the report and continued to grind up towards its 52-week highs. The daily relative strength index (RSI) bounced and flattened at the 75-band. Pullback support levels are at $37.91, $35.44, $33.52 and $30.56.

Stellar Q1 2024 Performance

Pinterest reported Q1 2024 EPS of 20 cents, beating consensus estimates by 7 cents. GAAP net loss was $25 million, while adjusted EBITDA was $113 million. Revenues surged 22.8% YoY from $740 million to $700.28 million. Its global MAUs rose 12% YoY to 518 million. The majority of growth came from the Rest of the World (ROW). Average revenue per user (ARPU) rose 19% YoY to $6.04 in the United States and Canada. Global ARPU rose 10% YoY to $1.46.

Raised Guidance

Pinterest provided upside Q2 2024 revenue guidance to $835 million to $850 million, representing 18% to 20% YoY growth. Non-GAAP operation expenses are expected in the range of $490 million to $505 million.

AI and Shop-Ability Driving Greater ROI for Advertisers

Pinterest CEO Bill Ready was upbeat about the quarter and how AI investments were paying off. Ready stated, “Thanks to our investments in AI and shop-ability, we’re driving even greater returns for advertisers and gaining access to performance budgets. We’re executing with tremendous clarity and focus, shipping new products and experiences that users want, and in doing so, we’re finding our best product market fit in years.”

Pinterest also completed its rollout of direct links in the first quarter. This reduces friction and improves actionability, taking the user directly to an advertiser's product page. Clicks to advertisers have more than doubled YoY.

Pinterest analyst ratings and price targets are on MarketBeat.