Expectations of investors were high and were exceeded. The social media and marketing platform Pinterest impressed investors with an unexpectedly high revenue and earnings growth. The reaction was clear – directly after the numbers the Pinterest share price shot up by 19% and yesterday’s trading day the share price was able to build on the gains.

What were the numbers in detail? What can investors expect in the coming months and how do analysts assess the price potential of Pinterest?

Photo platform with network effect Pinterest is a social internet service in the field of photo hosting. Through the platform (online or app), users can upload images, categorize them into categories and certain topics, and share them with other users. This way, users have the opportunity to save interesting, inspiring or useful content on their virtual pinboard and comment on it or discover it on other users‘ pinboards.

Currently, 482 million users use Pinterest monthly to search in more than 175 billion contents from various topics such as cooking, travel, weddings, parties, fashion, interior design, garden, sports, etc.

Money is made Pinterest mainly earns money through advertising on the platform, particularly with so-called promoted pins. These are creative contributions in the social network created by advertisers. Products or services are in focus that can be purchased for money. As a platform operator, the social network receives a revenue share when selling linked products.

Growth dynamics is picking up again In the third quarter, the social media platform’s revenues increased 11.5% to $763.2 million. This exceeded analyst estimates (Source: Seeking Alpha) by $19.8 million. For comparison: In the previous quarter, revenue growth was only 6% (Q1 2023: 5%, Q4 2022: 4%).

Here is what it looked like in terms of user numbers: In the US, the number of monthly active users was 96 million and thus only slightly above the previous year’s level (95 million). Internationally, the number of users increased by 28 million to 258 million, while in Europe monthly customers accessed the network 128 million (Q3 2022: 120 million). This resulted in a total year-over-year increase in user numbers of 37 million to 482 million.

At the end, Pinterest achieved an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $185 million. This was clearly 140% higher than the comparable prior year period. One reason is the focus on costs: For example, marketing costs fell to $200 million, representing 26% of total revenues. In the previous quarter, the ratio was still 30% of revenues.

Lucrative users in the US It is also interesting to look at the monetization of each user: Although only about one fifth (19.9%) of the users come from the US, the home market was responsible for 80.9% of total revenue. Per user, Pinterest earned $6.46 in North America & Canada (vs. $6.13 in the previous quarter). For comparison: In Europe, users were much less lucrative with revenue of $0.91 (vs. $0.72 in the previous quarter). In the rest of the world, the company even earned only 12 cents per user, but this was 9% higher than the previous year’s level.

Further growth in sight For the current fourth quarter of 2023, Pinterest forecasts revenue growth of 11 to 13% year-over-year. At the same time, the adjusted operating expenses are to be reduced by 9 to 13%. Accordingly, the profit margin should further improve. Investors seem to like the prospects, as the share price reaction clearly shows.

Analysts remain cautious Meanwhile, analysts remain cautious: Of the 32 analysts who are dealing with the share, 17 are only recommending to hold the share. Another 14 Wall Street bankers vote for buying the shares, while one analyst sees a sale of the share.

Based on the consensus estimates of 1.08 cents earnings per share in 2023, the share is valued at a 26-times price-earnings ratio. On average, analysts estimate the fair value for the share at $34.86. For comparison: Yesterday evening, the share traded at around $31.