Hey guys, it's sasha and today i'm going to be doing a deeper dive on pinterest. I put out a video a week ago talking about pinterest and in that video i said that i will be personally investing in pinterest and after making that video, i did go ahead and invest, but i broke my own rule as i was gradually investing from my Different accounts in different days trying to keep busy and on thursday last week, pinterest published their q3 results. Now i suspected that the market would react badly before those results came out, because i thought some of the numbers would not not look very good and they didn't. But i thought that i'll be able to invest in even better prices after as a result and contrary to what i thought pinterest shares went up six percent on friday.

So here's another lesson for you that timing: the market is a bad losing strategy and in this video i'm going to do a bit of a deeper dive on pinterest talk and i'll. Explain exactly why i am investing in pinterest and i will actually continue putting more money into it. I am buying a fair bit of pinterest stock into my portfolio and it will become one of my five big positions. So please take note because my view as a result could be perceived as being biased and remember that i am just a random guy on the internet.

I am not a financial advisor and i'm not your financial advisor. You should not base your financial decisions based on what i or any other random guy on youtube says. Always do your own research understand what you are investing in and steer clear of anything that is promising to take you to the moon in a few days or weeks so q3 results came out and the same negative news has continued on the surface for pinterest. I will explain in a minute why this is completely irrational, makes no sense and why i'm completely ignoring this news when we dig a bit deeper but on the surface pinterest is in massive decline.

Pinterest, active monthly user numbers have dropped for the second quarter in a row. The global total was 478 million and q1 this year and it dropped by seven percent to 444 million in q3, not great for what is apparently a growth stock right now, u.s user numbers are even worse: 98 million in q1 and 199 million in q3. That is a drop of 10. It sort of looks like the platform is in free fall.

Even if you compare the same quarter a year ago, the total number pretty much hasn't changed and the u.s number of users is massively down and remember that it is those us customers who are earning the big bugs. That's where most of the revenue opportunity currently is with advertising, so things really aren't looking good. Why would anyone want to invest in pinterest with these numbers? They posted a net income of 94 million dollars for the quarter, which is good. It is 376 million dollars on an annualized basis, but pinterest market cap is almost 30 billion, that is an annualized pe ratio of 80 and the platform is apparently tanking, and this is exactly why the stock has been doing what it has been doing.

The current share price is lower than it was a year ago and we have seen a spectacular collapse since that share price was much higher in the mid 80s in february and april earlier this year, and, as is often the case, i think wall street analysts just Haven't done their homework on the stock, and that is exactly the sort of company that i love to invest in one that maybe some other people don't understand. Deep enough, where i can see concrete data that lets me personally find a model and build an understanding that has an upside that is substantial, even in a conservative scenario. First, let's address the big elephant in the room, these falling user numbers, because every analyst that i've watched or read recently about pinterest is talking about this and sure. If you go to pinterest recent results and just look at that chart, it does kind of look like that right.

But imagine if you were an analyst who actually spent more than one minute on doing the analysis you might in that case, go and just do a bit of a zoom out and look at the data over a longer time frame and then try to understand and Overlay, what the different exogenous or other factors may be, that could have impacted those numbers, and here it is. I went and compiled the data myself for as long as i had it available. Look at the chart before q1 2020 we've got steady growth on the user base. U.S user base seems to be approaching some kind of a saturation mark.

It's not growing as fast and it's kind of staying flat with very slow increments and the global numbers are steadily growing and doing kind of well now go and add a very rough, very approximate, just not particularly scientific trend line just so that we can see what's Happening and you can see that in q1, 2020 pinterest suddenly began slightly outpacing the trend and then the jump in q2 is even bigger and then from q3 2020 to q1 2021. The numbers are through the roof, but then you go and just think about it. A little bit, you know, use your brain and you remember that at the end of q1, 2020 was exactly when you know coronavirus arrived in the us and europe and everywhere else. In q2 we had all the lockdowns start everywhere we had stay-at-home orders that were being issued.

Businesses were shot everywhere, all of that kind of stuff. Remember that then we progressively had it going from bad to worse on a global scale in different countries and it sort of peaked over the course of last winter. You know q3, through to q1 people were stuck at home. We saw a whole load of really interesting data.

Peloton numbers were exploding. Remember when everyone wanted one and so did. Peloton's share price netflix was smashing records and yep you guessed it. People were also busy browsing the internet.

They wanted to go and buy things online. Make plans for the future, and so they used platforms like pinterest the platform where you can search for stuff in a very visual way, save your ideas and share those ideas with other people, and now that lockdowns have eased. People have gone back to work and all of that jazz and we seem to have lost that bump, but that was a one-off temporary surplus over the existing natural growth trajectory and i am not in any way surprised that it's gone away. I also don't really care.

It doesn't bother me whatsoever because it now looks like looks like the platform was in decline because those monthly user numbers have dropped, but i am seeing a growth that had a little bump. On top of it, i am seeing a near saturation point on us. Users q3 had 89 million, which is higher than the numbers before q1 2020, and it is continuing that sort of same trajectory and the rest of the world figures have risen from 247 million before covert to 356 million in seven quarters. That's 44 percent growth or 23 percent on an annualized basis, and i'm perfectly happy with that, because the number of users here is substantial.

It is already more than big enough to provide this company with revenues in the coming years. It is impossible to grow at a rate of 100 per year when you already have 444 million active users, there's only so many people in the world and out of those people, not all of them, are ever going to be interested in pinterest and they're, not going To be in the pinterest target market - and here is something really important: if you keep it super simple pinterest revenue is a product of two numbers. The number of monthly users multiplied by the revenue per monthly user at the end of the day is kind of simply that and we have the monthly users growing at. As we just looked at 23 percent per year, it doesn't sound like a lot.

I actually think the global growth is probably going to keep added and the us growth with headbat will head back to the 100 millimark at some point, but 23 is still pretty good, but here is the other half of the equation, the one that most people don't Study anywhere near as much the u.s revenue per user is continuing to grow, we're at 5.55 for u.s users, which is great it's up 44, compared to the same quarter last year. Despite everything, the numbers are growing and you can't really compare these numbers quarter on quarter. Unfortunately, because ad revenue is just so different throughout the year, for example, q4 ad revenue always smashes every other quarter, because we have christmas black friday and all of that stuff and look at the international ad revenue. It is tiny.

It is microscopic compared to the us at the moment, at just 38 cents per active user and yes, international traffic is worth less than u.s traffic to advertisers and there is a huge, huge gap, but compare that to other platforms, and you can see there is a Massive massive room for this thing to grow when you look at what international ad rates are for more mature advertisers like google or even facebook, this can grow by several times before we approach any kind of saturation. So this has a massive way to go and look it's growing 81 just over the last year, and that is nuts because remember it is the international users that are also growing now at the same time. So if the ad revenue for them is growing plus the number of those people is growing that over the next few years might become quite an important constituent of that total revenue figure. But here's the thing - let's just be conservative - for a second and estimate that we only have 40 percent growth in ad revenue.

That is much much less than what it has been growing at the moment, and i think what it will continue growing at then go and estimate that the growth in users is just 20 again less than what that rate of growth is at the moment. And then you multiply them together that 20 and 40 and you get pretty much 70 percent growth in revenue. Yep 70 growth in revenue per year from those two numbers that are much lower than what they are right now, and that is actually what i have roughly in my model as the rate of growth for 2022. But then in 2023 i go and drop that to 50 percent and then drop it all the way down to 32 by 2026..

Do i think it will actually drop well? No, i don't. I think it will probably most likely be above 50 for the next few years and if i was trying to you, know see how much my potential upside is in a reasonable expectation case. That's what i would do, but on a conservative assumption i still get an upside of 80 to 100 percent. Here is a chart of what pinterest organic traffic looks like from semrush.

This is not going to be accurate and pinterest does block most traffic sniffing robots like ahrefs, for example, but it's still pretty useful as an indicator. Look at what happened from february 2020 onwards, the pinterest web traffic has exploded and has then kind of stayed roughly flat. This doesn't include app traffic and the data is far from perfect sure, but it is just yet another indicator that i absolutely love the traffic made a huge jump because of the factors that we know, but then it roughly stayed at that level. We have consolidation, but together with the higher ad rates and the fact that the monthly active user numbers have dropped off to me, this is really interesting, because that indicates the platform is improving their engagement data, improving the way that the users are using the platform.

How long they're spending on the platform? How often they come back to it? A lower number of users seems to be generating similar relatively levels of traffic. At least the drop is not very pronounced, and that is a great sign, because that means that pinterest actually is improving, and i personally have noticed that they have improved their navigation. The layout and the process is still ongoing. Pinterest has also been actively changing navigation and direction of users over the last couple of years.

If you use pinterest, you will notice this. It used to be a rife with internet marketers, making millions of pins to drive traffic from the platform to their website. I know because i was one of those people, but recently pinterest has been shutting that door very hard on people who use all these sketching tools like tailwind, and that has hurt anyone like me who used pinterest to get traffic. But it also means that pinterest is working very hard to capture more of that traffic.

More of their audience, keep them on the platform rather than make them leave the platform serve them more information, get them to engage more, get them to do more with the website and serve them more ads as a result, and then we have to go and look At costs, which is the other side of the equation, pinterest revenue grew by 43 percent year on year. Overall, remember this is compared to last year, so this is actually amazing, given that we've seen a drop in that monthly user data in the last few quarters but scroll down, and you can see the cost numbers these have grown in between 13 and 34 percent and That is another huge data point that is really important. It means that the costs are growing yeah, but they are growing at a much slower rate than the rate at which the revenue is growing, and that means that the net margin is growing all the time. By quite a significant number every quarter - and you can see that adjusted ebitda q3 was 201 million dollars on total revenues of 633 million.

That's a margin of 31.8 percent. But at this rate, if this continues - and i definitely think it will because we're getting to economies of scale, we're going to be seeing margins of 40 and possibly even 50 over the coming quarters and years and that's when the numbers can get really exciting. So i personally continue to think that pinterest stock is very undervalued. I had a target price of 85 before, but with the revenue growth continuing and the margins continuing to climb.

I probably would support my ongoing theory that i would push towards a higher number within my dcf range towards that ebitda, multiple approach, so i'd probably upgrade that to maybe 90 as an investor. As a result, it doesn't really matter both have very significant upsides over the current share price. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching.

I really really appreciate it and, as always i'll see you guys later, you.