Hey guys, it's tasha pinterest posted results last week, and let me tell you something that company is doing some seriously epic stuff and nobody seems to be paying much attention. The stock went up 11 after those results came out, but it is still trading at a huge discount compared to any point. In 2021., the share price is 27 roughly, as i'm recording this video pinterest has not been immune to the grey stock. Sell-Off.

That's hit. Every single other grow stock, but the numbers for pinterest are insane in this video. I will share some insight into pinterest share my view on the fundamentals of the business, show you my model and tell you what my target price is now. I have talked about pinterest on my channel before because it has become one of my big positions in the mana vs the market portfolio, and i had some really good things to say about the stock and the share price.

When i was first talking about pinterest on this channel was about 44 at the beginning of november. The share price is now 40 percent lower, but the fundamentals of the business are still very strong. In fact, they are stronger and i wanted to share why i am investing in pinterest and why i am particularly excited by the stock. But just remember that i am a random guy on youtube and i am not your financial advisor.

I'm just sharing my opinion and my analysis and both my opinion and my analysis may well be completely wrong. So please do your own research. Please don't base your financial decisions on what i or anyone else on youtube says all right, so pinterest published their results and there were a few really interesting things in there. First up, the company made 846.7 million dollars in revenue, which is up 20 compared to q4 2020, and this closed out the first year in which pinterest was profitable.

This is the sort of sweet spot where i really really often find myself investing in a company, because you can already see that non-linear growth coming through due to them becoming profitable. You can see where the company is headed, but the wall street analysts are usually still sucking their thumbs at this point and will miss out on those clear signs. This tends to happen a lot with gross stocks now. The really interesting point here is that the real growth rate figure is being massively under reported in these numbers coming out right now because of a weird timing anomaly, this is because pinterest got a huge boost in the early stages of the pandemic, not the very early Stages, but from sort of three to four months in you can see that the revenue for pinterest jumped very sharply between q3 2020 and q2 2021..

Those four quarters were 84 up on revenue compared to the previous four. That was a huge jump during a period where people were staying at home, isolating and using platforms like pinterest a whole lot more. So the current rate of growth of 20 is sitting on top of this artificial amount of growth last year, which was much higher than normal. Pinterest is forecasting another high teens rate of growth for q1.

Again, this is on top of a huge jump in the same quarter last year, compared to the quarter the year before that pinterest has been growing at around 50 per year before all of this happened, and if you take the latest q4 numbers and compare them to Q4 2019, which is two years ago, the revenue was 112 percent higher, which is roughly 46 growth per year on average. So it's an interesting anomaly to an untrained eye. It kind of looks like pinterest is maybe losing steam and slowing down, because the growth is only 20 or higher teens, but the reality is the opposite. If i use their guidance of high teens for q1 and apply 18, for example, growth for q1 numbers, you get an average rate of growth of 45 percent over the last two years as well, so roughly in the same ballpark.

By the way, i have an affiliate link in the description that gives you a 50 discount on seeking alpha, which is the tool i used to get my data. I paid full price for my own membership way before i got that affiliate link because i find the platform genuinely useful. So if you are interested in using it for your analysis, feel free to use my link, if you want to get that 50 off and i'll get a little commission as well, so everyone's a winner all right, the interesting point will be when we get to q3 Results at the end of this year, because that will be the first time when we have cycled a full 12 months after the artificial boost because remember q2 2020 there was a general state of global panic and revenues were down for pinterest in that quarter. But then, from q3 2020 platforms, like pinterest, began getting this artificial boost from people staying at home.

All of that, so q3 2022 will be the first quarter when we have had two full years from the start of that artificial boost, and that is when the pinterest numbers could begin. Looking really really interesting, because that will be the first point when we're comparing numbers to a point in time a year ago, where 12 months before that point was also during the artificial boost period. One really big negative in the q4 results was the drop in monthly active users. It was the third consecutive quarter of that number dropping, and this is very consistent with what we saw with revenue, where user numbers got a huge artificial boost at first and now we're seeing this deflation back down, which is probably deflating the numbers below where they would Naturally be as the world is opening back up, but if you look on page 12 of pinterest letter to the shareholders, you can see that, as of the 1st of february 2022, the number of monthly active users for pinterest is up.

So it looks like pinterest has actually now hit the bottom on that post pandemic unwind and the numbers are up about 6 million users since the end of december, which is pretty good. It's only up over one percent, so it's still going to be nine percent down. If that number maintains on q1 2021, which was the peak when the user numbers happened, so the same chart updated next quarter will actually look even worse, but it certainly looks like the tide has now finally turned. I said before, and the really big target here is not even the user numbers.

The really big target is the monetization, because pinterest is still very very early on in that journey. Pinterest has a huge and un impossibly huge advantage over many other platforms in terms of their monetization. First up. The platform is incredibly visual based on graphics, based on photos based on imagery, and that plays incredibly well into effective ad integration all by itself.

But the best thing is that pinterest has an insanely high buyer intent. This is critical, think about it when you're browsing facebook. What are you thinking? What are you doing? You want to see your friends, you want to understand what they're up to. Maybe you want to message some people when you're looking at tick, tock, you're looking for some kind of entertainment, some kind of you know relaxation, maybe whatever, when you're using snapchat.

It's all about communication with pinterest. A huge part of the platform's use is to look up and save ideas of how to spend money. You might have a board with some great ideas for furniture you want to buy. Maybe you have a bunch of pins you're, looking at about vacations that you're thinking of taking so the potential for advertising revenue on that platform is naturally ridiculous compared to the others and it's theoretically a lot higher than the less targeted platforms.

Because of that buyer intent. The revenue per user is growing and is growing really quite fast. It was 1.93 in q4 2021 with u.s users earning 7.43, which is upgrade considerably for comparison, though facebook earned 11.57 globally and 60.57 per user in the us in the same quarter. So pinterest is currently monetizing at almost 10 times less than facebook.

There are two big developments for monetization arriving in the next few months. The first one is seamless checkout. This feature was due to roll out at the end of december, but has been pushed back to some point this year. That feature is actually epic.

It allows companies to sell to pinterest users directly on the platform natively without leaving it. If you decide, for example, you want to buy that armchair that you've pinned you have the option of clicking the buy button and completing the whole process without leaving the pinterest platform. So it's seamless it's fast, it's very easy: pinterest gets their cut and obviously ad spent is naturally going to go up a lot. This is a big big feature and the other big work stream is improving the ad platform and analytics on pinterest.

I've actually used the platform professionally as an advertiser and at the moment that platform sucks, it is really pretty bad and the analytics are really poor and very hard to use, and that is a great thing, because the company made 846 million dollars a quarter in the Last quarter, despite all of that and as pinterest ramps up the ad platform and makes it better which will come, they have a lot of people working there. They have a lot of money to spend on bringing new people in which is exactly what they're doing. That is going to have a very, very big effect on the usage of that ad platform. So let's look at the numbers.

Pinterest has an insane balance sheet. There is no debt at all. That is very, very unusual for a company at this point. In the gray cycle, and not only that but pinterest has 1.4 billion dollars in cash on the balance sheet and another 1 billion dollars in short-term investments, the cash position has been growing consistently and the sum of those two things is two and a half billion dollars Which is mind-blowing because it's roughly the whole turnover that they made last year and then the 650 million dollars sitting in the accounts further down in the accounts.

Receivable, when you add that in the company has 3.1 billion dollars in cash and things that are pretty close to being cash, so when the company is valued at 17 billion dollars, just remember that over three billion of that is almost literally sitting in the bank account And there is no debt and let's say that over the next decades, just for simplicity, pinterest manages to up their revenue per user to just the same place where facebook is today, nothing crazy, nothing completely out there ignore any other growth ignore any of the monetization methods. Ignore everything else just say they stay flat on everything, but just ramp up their per user revenue to where facebook is today just say that the revenue goes up because the platform matures and we can see that advertisers are already happy to pay that amount on other Platforms that would mean pinterest earning 26 billion dollars in revenue per year. Now, let's assume that as pinterest grows 10 times, it gets no benefit in terms of economies of scale and cost, so the operating margin in 2021 was just 12.6 percent. So let's take that 12.6.

It's not going to go up for ridiculous conservative assumptions. 12.6 of 26 billion dollars is 3.3 billion dollars a year. So before you even do any modeling discounting any of that. Pinterest has 3.1 billion dollars in cash with impossibly conservative assumptions and is heading towards making over three billion dollars in profit a year.

You can see it in the numbers so take that 3.3 billion multiply by 20 as a multiple then add the 3.1 billion they already have and another 1.5 billion dollars per year on average that they're going to make between now and that point in the future. You get 84 billion dollars which is 375 up on the current share price and if i assume that it takes them 10 years because they're slow, you know to get there, that's a return of 17 per year. So, for me, pinterest is an extremely strong long-term play and pinterest is one of my six big positions at the moment. Let me show you the model.

I shared my target price and of this model with my channel members last week. So if you're interested in the discussion around it see my target price evaluations feel free to sign up to patreon through the link in the description and i'll, see you in the discord. So in the model i am projecting a 50 rate of growth year on year to start with, pinterest has actually grown by 53 per year on average over the last four years and based where they are with the monetization. I still think they are very early on.

In that revenue, growth s-curve, i then have some pretty modest reductions in costs because of economies of scale, the company growing over the next six years, and i'm using some pretty standard assumptions here with a 10 discount rate and a 5 long term, growth rate and a 20 times ebitda multiple in 2027 and using these assumptions i get a target price of 85 using the perpetuity approach and 115 dollars using the ebitda approach. So i've increased my target price from 85 to 95 as a result of that, and that gives it a ridiculous and impossible 250 percent upside, which is exactly why i have been buying shares of pinterest recently. If you found this video useful by the way. 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.