After reporting its Q3 performance, Pinterest’s stock dropped by 20%, with the forecast lacking any positive outlook. Pinterest functions as a platform for visual searching and discovering. It allows users to find, save, and organize concepts through images and videos.
Since its entry into the stock market in 2019, the company has seen remarkable growth: its revenue has nearly increased fivefold over the past seven years, and it posted a profit last year. At first glance, investors might be inclined to remain optimistic, nonetheless, the competition is becoming fiercer. Major players in online advertising, such as Meta, Amazon, Alphabet, TikTok, and Reddit, are dominating the market, leaving Pinterest struggling to match their growth speeds. Concurrently, advertising budgets are being reduced. Businesses are encountering higher expenses and tariffs.
They are channeling their spending towards the top platforms that boast the largest audiences and advanced AI capabilities. Consequently, Pinterest remains a small entity in the digital advertising space, with roughly a 1% share in the US market. Its pool of advertisers is limited, and its reliance on home decor brands from China and the US is hindering its growth. Key Chinese merchants like Temu and Shein are now facing challenges due to the cessation of the “de minimis” exemption, which previously allowed them to bypass customs duties on minor shipments.
In Q3, Pinterest did manage to achieve a 17% increase in revenue, reaching $1.05 billion. This growth is still robust and is projected to remain in the double digits in the forthcoming quarters. The monthly active user count continues to rise, now surpassing 600 million. Nevertheless, analysts are worried that the monetization of newfound users isn’t happening at a rate comparable to that of existing users.
Engagement might be influenced by the surge in AI-generated content and large language models. Unlike Meta, Pinterest has not successfully utilized these technologies to enhance its advertising rates.
Introducing a voice assistant could provide Pinterest with a chance to stand out from OpenAI. However, this initiative will necessitate considerable investment and time before it produces visible outcomes. At present, the stock’s valuation is still regarded as elevated. Today’s drop serves as a reminder that the market does not tolerate disappointment at such pricing levels.
