PINS. Driving Point.

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FEBRUARY 26, 2021

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Were we dreaming? So fine, so young, Pinterest is truly creating its’ own. 2020 proved a very good year. 100 million new Monthly Active Users(MAUs) descended on the site to pin their visions and dream. Creating out loud is how social media works. Yet as the antitrust authorities drill down on both Facebook and Twitter, Pinterest posts 76% y/y revenue gains for Q4, and 48% for its’ full year. Sometimes that glitter you see across the bay is indeed gold.

“We welcomed over 100 million additional monthly active users to Pinterest in 2020, more than any other year in our history, and now we reach more than 450 million monthly active users around the world. I’m proud of our company and the inspiration we’ve been able to bring to so many lives during a trying year.” Ben Silbermann, CEO and Co-Founder, Pinterest. “As we look to the future, our focus will continue to be delivering more inspiring and shoppable content and helping advertisers realize the value and positivity of our platform.”

The wild days of startup speculation seem fully over for Pinterest. The company no longer asks itself how many people may resonate with a “visual discovery engine,” their self-description. The San Francisco-based company provides a massive platform for “thematic image collections and idea creation.” No question exists in CEO Silbermann’s mind about what they’re doing; serving advertisers by delivering sales. That’s the business, connecting users with advertisers by interest and closing sales. The company’s focus on users is simply a sales driver, a means to an end. Think Facebook, and everybody else.

Silbermann–“We continue to navigate uncertainty given the ongoing COVID-19 pandemic and other factors. Our current expectation is that Q1 revenue will grow in the low-70% range year over year. Our strategic priorities for 2021 include content, the Pinner experience, advertiser success and shopping.”–Q4 press release.

Anyone will tell you that growth gets crushed when markets pull back. The NASDAQ has done that. Many were crushed–think PLUG. PINS continues to shine, and grow, as fast as anyone.(SJChart.)

Inspiration is the main driver of site traffic. If you haven’t thought of it, someone else probably has. If not, it’s yours to create, and share. The nature of this endeavor seems virtually boundless, yet thus far relatively free of the vile content plaguing social media in general. Redecorating? They’ve got that–regardless of what. Love fish, surfing, gardens? Right. Yet no modern service goes without a price. Facebook taught that lesson, ugly-style. As users pin together their pleasure and create the new, PINS serves them up to advertisers. That’s the social media model, the sales model’s heart actually; create a crowd and flog them form every angle with ads. Even streaming, the uncable, can’t dodge that static. Think ROKU, the new cable. The ad contagion has even soaked through to your remote–again, think ROKU.

Crowds bring advertisers and ads feature brands. PINS provides space and services to brand advertisers. The site perfectly organizes users by interest, for targeted ad exposure. That’s life in the panoramic advertising age. As intrusive as ads can be, even “ad avoiders” appreciate the good and the new when it’s relevant. Site content forms the “top of the funnel,” which leads to inspiration, then ads, and the “POS,” or point-of-sale. That’s the path. Tightly-focused ad targeting, along with a host of advertising services, are the juice that powered the phenomenal growth of both Google and Facebook. All commercial internet success is driven in this exact way. The now $52 billion Pinterest may prove another one of the model’s best examples. Institutional investors seem to think so, as they own 78% of PINS outstanding shares.

Back on February 4th at 505 Brannan, San Francisco, the PINS brain trust clustered to produce its’ Q4/FY 2020 conference call. Right. When you beat EPS consensus by 33.5% you do some talking. Ben Silbermann is not only CEO, but also Chairman of the Board, President, and Co-Founder. PINS’ call was also hosted by CFO Todd Morgenfeld. Todd knows how to use analyst’s names. Any warmth in this cold call came from Todd.

What did emotionally self-contained Silbermann lead off with? Only that Pinterest posted a “37% MAU growth rate for the quarter, and that the enterprise went “Non-GAAP profitable in Q4.” That’s spanning the gap. The company posted a $0.43 Non-GAAP EPS against a $032 consensus estimate. Again, a 33.5% consensus estimate beat. That EPS mark also exceeded the company’s year-ago quarter by a factor of 3.5x. Those are “dealin’ with it” numbers. And revenue and income?

Precisely where is Pinterest most succeeding? The United States. 84% of 2020 revenue came from the U.S., while the U.S. comprises only 21.3% of MAUs(monthly active users.) ARPU(average revenue per user) came in at $15.34 for the U.S., versus a slim $0.88 from International. And the company’s 2021 focus? CEO Silbermann: “Our strategic priorities for 2021 include content, the Pinner experience, advertiser success, and shopping. We plan to invest in these in the coming year.” Silbermann frames site function from the user perspective. “People need a place to dream, away from bad news. Users want to find inspiration and than go out and do things in their lives.” How does the company hope to make itself essential in that process?

Pinterest’s current priorities are led by a drive to produce “Inspiring content,” made by notable creators focused on teaching users how to “do things.” CEO Silbermann’s clearly convinced of the power of video as the leading driver of inspiration. Investing in video for PINS means courting valued creators to the site. “We’re looking for video content focused on how to do things.” The ultimate goal is to land high-profile content creators, and then connect them with brands. “It’s early days on that,” Morgenfeld states when questioned about data-driven ways to achieve that. Think Tiktok as a model. Tiktok bundles teen content creators together in company-sponsored west coast mansions forming hothouses of bubbling creation. They serve wine. It works.

Lombard Street, Russian Hill, San Francisco, CA, Pinterest’s home base.

Content “safety” is a guiding management principle and a very valid concern, one which leads to the company’s second goal of “deepening the Pinner experience.” That means building greater user engagement–time spent on-site and a strong connection with the Pinterest brand. Management clearly hopes to steer clear of the ugliness and negative publicity produced by Facebook and Twitter. No doubt they also hope that a “first class user experience” can drive the growth Amazon has proved possible when you focus on constantly improving said.

All of that being true, Pinterest rightly understands itself as primarily a sales machine, a POS, or “point of sale.” As such, their third stated priority for this year is “helping advertisers to succeed.” Silbermann, “People come with the intent to buy things, to create the things they want.” It remains unclear whether this statement is one of fact, or aspiration. This leads to the fourth and final focus of “Shopping.” Again Silbermann: “Our mission isn’t complete unless we help them[users] to create the vision they have offline.”

How is PINS doing in its’ quest to serve the advertisers that feed it? CFO Todd Morgenfeld; “Advertisers are saying that their ads are working, and that they really value the brand.” What’s the company’s intent toward serving advertisers? Silbermann; “We want to continue to focus on automation. We really want to make it easy to place ads and measure the results.” Again, a pair of stunning models exist for this–Google and Facebook. Here management’s in part talking about “programmatic” advertising. That means entire preset ad campaigns in a box, available to click buy and measure. Todd: “We want to have advertisers bring us their goals and their budget and have us automate that.”

Why PINS?

Name it what you will, growth or momentum, Pinterest is moving, very quickly. Is Pinterest a good stock? Absolutely. It’s also relatively early in its’ maturation cycle, unlike the embattled FB. That means PINS faces the distinct probability of many years of serious profitable growth. Can Uber say that?

We know what many are thinking. Valuation. Many smart people will warn you away from PINS while nervously wringing their hands over high valuation. Fine. And when you look down such value investors’ lists of “BUYS” you’ll likely be looking at WMT, JNJ, MMM, or even IBM. In our view IBM’s not worth picking up off the sidewalk. But one wouldn’t be exactly wrong on Walmart–if it can stick to its’ past record. WMT’s cheap against the market on every metric, returning 17% a year over the past three, and it’s on a 10% sale against its’ month ago price. Love all that. What else would you get with WMT? You’d get a legitimately-cozy sleep-at-night play, along with a 1Y EPS growth estimate of -1.3%. Or you could pay up for PINS. What then? You get a 1Y EPS growth forecast range of 92% to 102%.

So what is PINS? It’s social media growth, without QAnon or antitrust hearings. It’s greater volatility risk. It’s expensive. But sometimes you actually get what you pay for. Time is money. How long do you have to wait for growth? Over the past six months Walmart has returned -0.53%. That’s as of Friday’s close, on 2-26-21. Over the same six months PINS has returned 136%. And Facebook? FB’s returned 135.7%. But it took five years to do it.

Indeed. PINS is not a value play. It’s a now profitable high-multiple high-flier, a first-to-be-hit in any pullback growth monster. Such growth is always hit the hardest. What value investors don’t often add however is that high-quality growth often stomps right back Godzilla-like when skies again clear, and they always do. Why? People crave fast growth, even more so now. The math is simple here. Great performance is expensive. But then just like a Benz, great performance can take you a very long way. Following PINS’ Q4/FY’20 report, we’re now onboard for that ride.

Look inside Pinterest’s Q4/FY 2020 results–the Full Monty:

https://investor.pinterestinc.com/investor-overview/default.aspx

As always good luck and savvy investing.

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