Pinterest

Pinterest reported second-quarter results, which included sales growing 18% to $1.18 billion and adjusted EBITDA margins expanding 100 basis points to 25%. User count grew 11%, while average revenue per user, or ARPU, grew 7% in the quarter.

Why it matters: While Pinterest's ad performance and return on ad spend remain below Meta and Alphabet, we are encouraged by the firm's aggressive use of AI to improve its ad targeting. The firm's AI bidding engine, among other tools, is driving its ARPU growth, a good sign for the future. On the user front, we are seeing sequential adds in the North American market slow down, with year-on-year growth in the market dropping below 4% this quarter. We expect the majority of Pinterest's growth in this market to be driven by improved ad tech and pricing, not user growth. We do expect user growth to remain strong in the international markets, however. Pinterest remains underpenetrated and undermonetized in non-Western markets, and we view these two levers as key topline growth drivers for the firm.

The bottom line: We maintain our $22 fair value estimate for narrow-moat Pinterest, with the firm's quarterly results and third-quarter outlook not altering our long-term view on the business. Shares sold off sharply after hours, likely due to the deceleration implied in the company's guidance. After the drop in share price, we now view Pinterest as fairly valued. For investors looking for high-quality digital advertising exposure, we'd recommend wide-moat Meta and Alphabet, both digital advertising behemoths that trade below our fair value estimates.

Coming up: Management's third-quarter outlook calls for sales of $1.20 billion and adjusted EBITDA margins of 29%, both at the midpoint of the guidance ranges. Investors were likely not too pleased with the 4-point deceleration implied in the 14% sales growth outlook. The outlook was in line with our prior estimates, and we view it well within Pinterest's reach.

Our fair value estimate for Pinterest is $22 per share, implying a 2026 adjusted price/earnings multiple of 9 times and an enterprise value/adjusted EBITDA multiple of 8 times.

We project Pinterest’s top line growing at a 9% compound annual growth rate for the next five years, with a healthy mix of user growth and improved monetization driving the sales expansion. In higher-value markets, primarily the US and Canada, we expect Pinterest to drive sales by improved monetization, with user growth in these markets expected to be materially lower than other geographies.

We believe the firm’s ARPU can be materially improved as it invests more in e-commerce and AI tools and features. Our projections include global ARPU improving from $7.03 in 2025 to $8.63 in 2030.

At the same time, we expect the firm to expand its user base, primarily by landing new users outside of Europe and North America. Over time as many of these developing countries become more digitized and digital advertising in these markets grows, we expect Pinterest to benefit via ARPU improvements.

On the profitability front, we expect Pinterest to materially improve its operating margins over the next five years. Our model calls for GAAP operating margins of 21% in 2030, up from 10% in 2025. We believe there is considerable operating leverage built into Pinterest’s model and as the firm tones down some of its sales and research spending associated with building new e-commerce and AI tools, margins should inflect upward sharply.

We believe Pinterest merits a narrow economic moat, owing to the firm’s intangible assets and a network effect that the firm has built around its business. While Pinterest faces competition from a variety of companies, including digital advertising juggernauts Alphabet and Meta, we believe that the firm’s differentiated platform will allow it to increase its share of advertiser spending. Further, we forecast that Pinterest will benefit from continued improvements in areas such as ad-targeting, user monetization, and user expansion, likely allowing the company to outearn its cost of capital over the next decade.

Pinterest is a search and discovery-focused application that allows users to collect and store ideas, in the form of images and videos, on a range of different areas, including travel, food, home decor, and so on. Users, or pinners, can post pictures and videos about these products and ideas, which are available for other users to view, and get inspiration from. Every incremental post on Pinterest is called a pin, and a collection of pins can be consolidated into a board. Instead of just following specific individuals or celebrity-type users, Pinterest users can follow boards that users can curate with images and videos on specific themes.

Like other social media applications, Pinterest is free to use. Instead, users form an audience that Pinterest can sell advertisements to. Advertisers, particularly those in end markets such as home improvement, fashion, and travel, can leverage Pinterest’s 500 million-plus user base and place ads in front of users that have signaled interest in areas directly related with/adjacent to their products. While having half a billion users doesn’t look as impressive when stacked against competitors like Meta, we don’t view digital advertising as a winner-takes-all market. In fact, we believe advertisers are constantly looking to spread their ad dollars across a variety of digital, and traditional, mediums in order to get access to a wide spread of users.

From an advertiser’s perspective, we believe Pinterest provides a differentiated avenue for digital ad spending. First, women constitute roughly two thirds of the application’s users. This female skew, when combined with specific end-markets that are disproportionately represented on Pinterest, creates for an attractive, highly specific, target audience for advertisers. Second, around 90% of the searches on Pinterest are unbranded. An example would be a user searching for “coffee table” versus “Ikea coffee table.” The vast majority of Pinterest searches being unbranded allows advertisers to grab a potential customer’s attention and build product and brand awareness without having to displace an incumbent in the user’s mind. Third, we believe that Pinterest’s image- and video-based application allows advertisers to place resonant ads that can grab user attention more effectively than other mediums including texts and links.

As users engage with Pinterest, the firm can collect high-quality data that it can subsequently leverage to place more directed ads toward users based on their interests. We believe this data, coupled with Pinterest’s differentiated user base, form intangible assets that provide Pinterest a competitive edge in a tough digital advertising market. While we foresee Pinterest playing second fiddle to the likes of Meta and Alphabet, we believe that the firm provides an attractive value proposition to both users and advertisers.

Pinterest’s increasing importance to digital advertisers is also evidenced in the firm’s growing average revenue per user. Pinterest’s global ARPU for 2023 was $6.40, up from $3.07 in 2018. We believe further improvements in Pinterest’s ARPU are likely as the company continues to invest in its ad monetization and user engagement algorithms.

We think Pinterest’s intangible assets also help bolster the firm’s network effect. As more users join Pinterest or engage with more content on the app, the value of the company’s ad offering to its advertisers goes up, allowing Pinterest to spend more on product improvements and user acquisition, which fuels more ad spending. Further, as more engagement occurs on Pinterest, the user experience also improves with more user-curated boards, more pins, and more crowdsourced ideas/inspirations for users to access.

As we think of Pinterest’s increasing value proposition to both users and advertisers, we think the firm’s ongoing shift to include more e-commerce features within its platform is likely to bolster its economic moat. Some of these features, such as “Buyable Pins”—which allow businesses to showcase their products, along with price and availability—can attract more user engagement, which the firm can leverage to improve its ad-targeting and monetization algorithms.

All in all, we think Pinterest has carved out a solid niche in the large digital advertising market, and we believe that the company’s roots would grow across the broader digital advertising market as it continues to add users, improve user engagement, and better monetize ads on its platform. We forecast that a combination of these three factors will likely allow Pinterest to outearn its cost of capital over the next decade.

Pinterest users interact with ideas across a wide range of product categories, like home decor and fashion, providing an extremely attractive target audience for advertisers.

Pinterest’s investments in e-commerce should improve its value proposition to advertisers, leading to more ad spending on the platform and an improvement in the firm’s average revenue per user.

With plenty of headroom for user growth across geographies, we expect Pinterest’s user count, particularly in markets outside Europe and North America, to grow at a decent clip over the next five years.

Instagram could leverage its far-larger user base to poach Pinterest engagement as it enhances its Pinterest equivalent, Collections, and expands its visual search capabilities.

Pinterest cannot effectively monetize its international users. Years of near ad-free service have conditioned these users to expect little interference in their feeds.

The firm’s investments in e-commerce and AI tools may not pay off. User monetization needs to grow meaningfully to justify the substantial cash outlay to build these features.