In this article, my cold weather brunch outfit goes head to head with Pinterest, Inc. (“Pinterest”) stock. Which is the better buy?
My cold weather brunch outfit has a retail price of $36.00. BUT you can get yours today for only $28.80 using my exclusive code: February20.
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Alternatively, Pinterest stock is currently trading at a price of $36.87. Let’s evaluate these two alternatives to find an answer to the question: which is the better buy?
Cold Weather Brunch Outfit
Cost = $36.00 $28.80 w/ promo code: February20
I purchased this poncho to help me stay warm during the cold winter months:
Don’t you agree it makes the perfect cold weather brunch outfit?! 😍
But, to be 100% honest, I was a little hesitant about purchasing it at first! As a petite, anything that has too much fabric tends to just swallow me up or makes me look ginormous. Luckily, this poncho has a belt, which makes it a really flattering cold weather outfit. And if you’re seeking cold weather work clothes, this poncho is a great option, since it can easily be dressed up!
Creating the Perfect Cold Weather Brunch Outfit
Personally, I like the more casual look. And accordingly, I recommend pairing the poncho with distressed jeans, booties, and a comfortable long-sleeve layering essential to create the perfect cold weather brunch outfit. Here are my 3 pairing picks to accompany the poncho:
As I mentioned above, the featured poncho retails for a price of $36.00. But you can purchase this exact poncho for $28.80 using my exclusive code: February20. You’ll also be delighted to know this promo code will give you 20% off your total Pink Lily order (including those fabulous pairing pieces). What a steal!
Deals like these won’t last for long, so get your brunch-ready plaid poncho today!
Other Cold Weather Brunch Outfit Ideas To Check Out
Not quite sold on the poncho? Check out these alternative cold weather brunch outfit and accessory options available at the Pink Lily Boutique.
Now that we have our cold weather brunch outfit put together, let’s now turn our attention to a comparably-priced stock to determine which is the better purchase. Today, that stock just so happens to be Pinterest.
Pinterest, Inc. (PINS) Stock
Cost = $36.87 per 1 share of stock at closing on 2/10/2024
Pinterest Company Profile
Pinterest, Inc. was incorporated in 2008 and is headquartered in San Francisco, California. According to the company’s most recent 10K report, Pinterest identifies as a “visual search and discovery platform”. Essentially, it’s a visual search engine. Enough said! Who doesn’t know and LOVE Pinterest. If you read my post 6 Things I Learned in My First 6 Months Blogging, you may already know that I use Pinterest to promote this blog. Check out my page and give me a follow! 🤙
Aside from being an AMAZING tool for content creators like me, Pinterest piqued my interest because of it’s recent price decline. Can you guess why? Yup! Revenue miss, baby!
Recent Developments
Can you tell I’m excited? When a company misses revenue estimates, it sometimes leads to a massive sell-off (like in this case) and may present opportunities for savvy investors. Over the course of the last 5 days since this was published on February 10th, 2024, Pinterest fell 7.25% in price. The company also published a weaker-than-expected forecast (Investopedia). Despite this, monthly active users on the platform reached an all-time high during the last quarter (Pinterest Press Release).
Also, Pinterest recently announced a new partnership with Google, following an already ongoing partnership with Amazon. The new partnership with Google will focusing on monetizing international markets through enabling ads to be served on Pinterest using Google’s Ad Manager. To find out more about the partnership deal, check out this article from Search Engine Land.
Key Metrics and Ratios
As of the date this article was written, the company has a market cap of $25 billion. And approximately 674.4 million shares are outstanding and 85% of those shares are owned by institutions.
As for PINS key ratios, the company does not have trailing 12 months P/E ratio (meaning Pinterest does not have positive earnings), a P/B ratio of 9.32, a profit margin of 0.88%, and a total debt to capital ratio of 5.74%. Currently, Pinterest does not pay a dividend.
Now, let’s turn to Pinterest’s most recent financial statements: the annual 10K report, as of December 31, 2023.
Income Statement Analysis for Pinterest
Revenue Growth
For the year ended December 31, 2023, revenues approximated $3.1 billion vs. $2.8 billion in 2022 and $2.6 billion in 2021. If you do the math out, that’s an increase of about 9% each year in revenue. Not bad, huh?
Year-Over-Year Losses
Yet, if you look at total net income (loss) it paints a completely different picture. So, what’s the damage? Well, from 2022 to 2023 earnings improved from a loss of $96.0 million to a loss of $35.6 million. But go back 1 year earlier. Net income (yes, income!) was a positive $316.4 million. So the difference in earnings from 2021 to 2023 is a whopping 111% decrease. Yikes!
What’s behind these recent losses? At the surface level, it’s easy to see that Pinterest’s costs are up year-over-year.
Let’s dig in a bit deeper by reading through the “Management’s Discussion and Analysis of Financial Condition and Results of Operation” (MD&A) section. And remember – don’t dismiss Pinterest quite yet! After all the recent price decline may make this a GREAT time to buy-in, especially if others are selling off in droves out of fear.
MD&A Analysis:
How Pinterest Generates Money
Pinterest generates revenue by delivering ads on their website and mobile application (10K report). So, the more advertisers paying for ads on the site, the more money Pinterest generates. I would argue this is a scalable business model. Especially when the platform is seeing growth in the number of monthly users! However, it’s worth noting that although the number of advertisements served increased by 31% in 2023 compared to 2022, the price of advertisements served decreased by 17%.
Why Pinterest Has Negative Earnings
Pinterest’s largest expenses (and the reason for negative earnings) are research and development (R&D) and sales and marketing. R&D costs increased 13% YOY to ~$1.1 billion. The increase was primarily due to a $98.8 million increase in share-based compensation expense and higher personnel costs (10K report). On the other hand, sales and marketing decreased 2% YOY to $911 million. Similar to R&D, these costs consist primarily of personnel-related expenses.
So, in essence, I believe the reason Pinterest has negative earnings is simply because it’s expenses (personnel costs mainly) are WAYYY too high! This is NOT a sustainable long-term business model.
If you’d like to conduct further analysis on PINS income statement, check out my post, The Income Statement: How to Read Financial Statements Like a Pro.
Balance Sheet Analysis for Pinterest
Assets
Pinterest’s largest assets include cash and cash equivalents (~$1.4 billion) and marketable securities (~$1.1 billion). Combined, they account for about 70% of total assets (~$3.6 billion) as of December 31, 2023. It makes sense, given the industry they’re in, that they don’t have significant physical infrastructure. However, when a company holds that much of their assets in cash, cash equivalents, and marketable securities, it begs the question ‘will that cash soon be put to use?’. Putting cash to use may play out in the form of strategic acquisitions and partnerships.
Liabilities
As you might’ve already guessed based on the low total debt to capital ratio (5.74%), Pinterest does not have many significant liabilities. Total liabilities amount to ~$504 million, less than half of what the company holds in cash and cash equivalent.
Overall, I would argue that the company’s balance sheet looks very healthy. Moreover, based on review of the balance sheet, PINS appears to be poised for long-term growth.
If you’d like to conduct further analysis on PINS balance sheet, check out my post, The Balance Sheet: How to Read Financial Statements Like a Pro.
Statements of Cash Flows Analysis for Pinterest
Now, let’s turn our attention to the company’s statements of cash flows. For the year ended December 31, 2023, PINS cash decreased by $249 million.
However, it’s worth noting, that the change in cash flow from operating activities was a positive ~$613 million. Personally, as an investor, I love seeing positive cash flow from operating activities. Arguably, it’s among the most important of the 3 buckets (operating, investing, and financing) because cash provided by, or used in, shows how well an entity is managing cash from their core business operations.
Reason for the Overall Decrease In Cash
The reason for the overall decrease in cash during 2023 is due to cash used in financing activities (decrease of ~$827 million). $500 million came from repurchases of Class A common stock. Another $335 million came from share repurchased for tax withholdings on release of restricted stock units and awards. In plain English, this means Pinterest is awarding their employees with PINS stock, and to offset the dilution from these shares, the company is buying back shares on the open market. Effectively, this offsets the dilution from issuing stock comp awards to employees. This is a fairly common practice. Also, it’s worth noting at December 31, 2023, Pinterest had another $1 billion available for stock repurchases. See the 10K report for more information.
Based on my analysis, PINS statements of cash flows do not raise any discernable red flags from an investment standpoint.
If you’d like to conduct further analysis on PINS statements of cash flows, check out my post, The Statement of Cash Flow: How to Read Financial Statements Like a Pro.
Summarized Analysis of Pinterest (PINS)
Based on my financial statement analysis, Pinterest appears to be a risky investment because of the significant costs to run it. I also question whether management is running it effectively, if they doling out increased stock compensation while there are no earnings or dividends for investors. To play devil’s advocate, the enormous pile of cash the company is sitting on may make it a prime target for an acquisition. Oftentimes, acquiring companies value the target company at a premium, which may drive the stock price up. Pinterest may also use it’s cash stockpile for its own acquisitions and strategic partnerships. And of course, there also exists the possibility that Pinterest is able to extract higher revenue and profits from international markets in the future following its partnership with Google.
Furthermore, because Pinterest’s revenues are dependent on advertiser dollars (which are dependent on consumer shopping), it may be worthwhile to consider future outlook on the economy. I could see Pinterest suffering immensely if we are to enter a recession.
Personally, I feel investing in Pinterest is too risky. Of course, you may feel differently. Over these next few months, it’ll be interesting to see how the partnership with Google plays out and whether that’ll lead Pinterest to profitability.
Cold Weather Brunch Outfit or Pinterest (PINS)
If you had to decide between this cold weather brunch outfit or one share of Pinterest stock, which would you choose?
As a reminder, if you’d like to purchase my cold weather brunch outfit, please use the link below:
And don’t forget to use my code February20 to receive 20% your order at checkout on items purchased through the Pink Lily Boutique.
If you’d rather purchase Pinterest stock, but don’t know how to get started investing, check out my FAQ page. It includes all sorts of helpful tips! And check out my investment philosophy page for even more helpful pointers for getting started.
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* Ratios and financial metrics provided by Fidelity as of 2/10/2024, the date this article was written.
* Please review our Investment Disclaimer Policy. The Chic Capitalist is committed to providing independent equity research. At the time of publication, The Chic Capitalist and its affiliates do not own a direct financial interest in the aforementioned stock.