Hey guys, it's sasha pinterest published their q1 results a couple of days ago, and the stock jumped up 13 immediately afterwards now exciting, as it may be, that it went up 13. Remember that pinterest stock is still 55 down from the 46 to 47 territory that it was back in november and 75 down from its peak over a year ago, in february 2021, when the share price hit 85.90. So, in the grand scheme of things, this latest increase is not even noticeable when you zoom out far enough on the graph, but is pinterest now turning the tide. Is this the time to maybe buy pinterest? Well, i am going to share my take on it and my analysis, but just before i go through all the numbers, remember that this is just my opinion.

I may well be wrong and at the end of the day i am just a random guy on youtube. I am not your financial advisor and if you do need financial advice, please make sure you go and seek the help of a suitably qualified professional. So let me share some of the insight with pinterest, and there is a lot to talk about. First.

Here is the overall performance figures from the press: release revenue in q1 hit 574.9 million dollars, that's up 18 on the same quarter last year and you will notice the interesting split that they show here in the highlights. The bulk of the revenue is still coming from the united states and canada, because pinterest is still in the very early stages of learning how to monetize the rest of the world and, by the way, this new split of us, canada, europe and the rest of the World is new, as of this quarter, so we're getting more data, more granular data, which is great for people like me, who like to look at as many figures as possible. Now us and canada only grew by 15, while revenue in europe grew by 27 and the rest of the world grew 152, because the starting point is just so absurdly low. These numbers are important and i do have to give pinterest credit this table here is an extremely useful explanation of some of what's happening behind the scenes because further down in this table, you can see the monthly active users data, and you can see here that pinterest Has lost users from q1, 2021 sounds kind of bad right.

A social media, slash visual search platform is losing nine percent of their global users and 13 of their us user base. Except then you remember two important facts. The first one is that pinterest, like many other companies, had an unusual, one-off, great bump in the second half of 2020 in the first half of 2021, because of covet people sat at home and turned to the likes of netflix facebook, blah blah blah and pinterest. And you can see here that the monthly active users have come down every quarter since q1, 2021 and by the way, i know exactly what you're thinking when you're looking at this table, because i was thinking the exact same thing, because in the previous quarterly report for Q4 last year, pinterest went for a brand new red and various shades of maroon design theme.

That was absolutely ghastly. I mean it really hurt my eyes and i am guessing. I wasn't the only one so that design only lasted one quarter and they changed it to a much more palatable blue theme. Now you can see here that technically, yes, pinterest is a nine percent down on users from q1 last year to q1 this year.

But here is what the same chart looked like a year ago and you can see that as the pandemic hit in q2 2020, the user numbers for pinterest absolutely exploded. So the numbers have come back down. But here, if you put the two charts together, you can see that the monthly active users in the last quarter before covert were 335 million and pinterest is now on 433 million users in q1. That is nine quarters later.

So if you annualize that that is an annual user growth rate of about 12 per year over this period - and you can see that now these numbers seem to finally have finished lapping over the covert bump. Q1 numbers are almost identical to q4, just 2 million higher and in the guidance section of the press, release pinterest confirmed that their global monthly users as of april 25th, so almost a month after the end of the quarter, were 432 432.9 million. So basically, the number is holding absolutely flat. Well, technically, it's a 0.4 million drop because in the earnings call they confirmed that the q1 ending number was 433.3 million.

We got an extra decimal place by listening to 45 minutes of the earnings call, but holding flat is good here, because in general, pinterest gets more of its traffic more usage on the platform in q4 and q1, like many other social media types web types websites during The winter months and remember that when pinterest reports, these monthly active user numbers, these are not the average for the quarter, they're, not what you might think they are. They are calculated on a trading 30-day basis on the last month of the quarter, so you only get that last month of the quarter's worth of data. So when we see these numbers come for free for q2, it's only going to be june. Data in there and june is one of the lowest points in the year for online engagement and then on.

The call pinterest also mentioned a few other interesting points. Historically, we've seen new user sign ups and resurrections typically tick up in the months of february and march, and we just didn't see that happen in the first quarter. We think, because of the impact of the search, algo change from q4, so google updated the algorithm in q4 last year and that has led to a slight drop in the traffic from google to pinterest. We've also got increased competition for eyeballs from new platforms like tick tock that are taking people's focus, and they also said this on the call.

The second was russia's invasion of ukraine, and we talked about this a little bit at the beginning of the covid lockdowns, that during periods where there are other large news, events going on people often turn away from inspiration and planning behavior toward real-time news updates that they Find on other services globally, the decline was due to lower engagement in russia, ukraine and other countries in europe, and we think, based on our estimates, that that was about a 5 million global mau impact. So had it not been for those events, we think our global mau's would have been modestly up from the feb 1 mau number that we shared so pinterest lost about 5 million users in the last two months because of the conflict in ukraine, from people in ukraine And russia, and if we had another five million users on top of that q1 user number, we would definitely notice the bounce. But here is the really interesting thing that came out at the end of that pinterest earnings call two days ago now on pinterest and what we're really trying to establish the creators is a place where they can publish content and they're rewarded for that content's ability to Inspire action rather than the raw entertainment value of that and that's gon na, have to be reflected in the way that we provide incentives for creators, but also the way that we rank content on pinterest. So the reason that a feed on pinterest feels different than a feed on a social network or a feed on a pure entertainment network is that the content is ranked taking into account how useful that idea will be to getting something done in the future.

As we think about things like create a rewards and roll out new ad formats, like idea pins that are sponsored um, that's the sort of central thesis behind it, and it's it's in line with the central thesis of pinterest overall, where this isn't a platform to talk To your friends, it's not a platform to keep up with the news, it's a platform for you to articulate things that you want to do in your life for us to help you visualize what an end state looks like and then for us to give us the Planning tools and the shopping tools to turn that vision into reality. We think creators can play a positive role all the way across that inspiration to realization journey pinterest is not trying to compete with platforms where the primary focus is entertainment. This is crucial. Pinterest is not there for you to talk to your friends.

It is not there for you to keep up with current events. Pinterest is the unique platform where you go to plan on how you're going to spend money and then spend your money. This is incredibly powerful. Stuff for a company that you're investing in pinterest is building a business model where you can go away and save ways in which you're going to spend money in the future and then at some point, come back to that thing.

You've saved and go and spend the money, and here is the really important thing. Pinterest is working on a whole number of developments at the moment to fully integrate the shopping experience within the platform you come to the platform looking to buy. I don't know an orange sofa. You browse around.

You find the sofa that you like and then pinterest is developing an api solution native shopping integration, a whole bunch of different ways where you can go and buy that sofa that you have saved without having to leave to go to another website without having to go. And find that sofa somewhere else afterwards and pinterest goes and gets their cut of the sale for facilitating the process very nice. Now going back to the numbers. Pinterest is also confident they are now past the downturn and user numbers.

They said on the call that they will stop reporting the latest user numbers within the current quarter, in which they're reporting at the end of next quarter, so starting from q3. They started reporting these numbers during the covet period because the user number started jumping very hard and then starting to decline very hard and investors were quite unsure and panicking, but as the numbers start climbing again on a regular basis from q3, they are saying the panic Should be over so back to business as usual, and that is very good and very reassuring. The rest of the pnr for q1 is quite uneventful. Costs are gradually coming down as a percentage of revenue on average, every single quarter remember that q1 revenue is generally going to be the lowest in the year in the advertising cycle, and this year the operating margin here on a gap fully gap basis is basically zero.

So from where i am sitting, this is a really exciting time as an investor for this kind of business, because this is the sort of turning point where a company is turning profitable, but wall street hasn't figured out exactly what's happening and remember that these costs here Include a fair amount of stock based compensation, because pinterest has been hiring a whole load of new staff, incentivizing existing staff and continuing to reinvest in funding that growth. You can see in the reconciliation bit within the shareholder letter that if you don't count the stock based compensation, because eventually it will decline, eventually stop being meaningful in terms of the overall p l as the company grows and matures. If you go and discarded, pinterest made 69 million dollars in non-gaap net income and 77 million dollars in adjusted ebitda, and that is a 13 net return in q1 revenue already pretty interesting. Now pinterest guidance for q2 said that revenue should grow by around 11 year-on-year and that doesn't sound very exciting.

They just grew by 18 and last year and the year before, they were growing by way way more, but then go and look at what happened in q2. 2021, in q2, 2021 revenue jumped up to 613 million dollars a massive jump from q1, so an 11 increase on that would put the q2 revenue this year on about 680 million dollars, which is a very solid rate of growth, a massive increase on q1 this year. As well and when you remember that last year, q2 already grew by a hundred and twenty five percent, so the ten percent comes on top of that, so i went and built my little dcf model. I forecasted all the costs out to gradually decline over the next six years.

They've been declining a lot faster than that recently, but let's be a little conservative here, then i forecasted the user numbers. I decided to keep the ending user numbers for this year flat at 434 million, and maybe i could have increased them. We're probably going to see an increase, but then also we're also probably going to see a little summer drop for q2 and the numbers will probably then start recovering from q3 onwards later on this year. But let's say as we get through the year.

For whatever reason you know the war, the ongoing pandemic, whatever they just don't, go up at all. Let's just stay on the conservative side here and then let's say the u.s numbers then start growing slowly at just seven percent per year after that europe at 10 and the rest of the world at 25. This is lower than the rate at which pinterest was growing before the start of the pandemic and lower than the average rate of growth that we've had through the pandemic. If you average out the last two years - and i then have these numbers decline every year for the u.s and the rest of the world, except for europe, where i've kept it at a flat 10, then i worked out what the average number of monthly active users Would be for each year because remember these years are year number, so you need to go and work out what the average number is through the year to try to figure out your commercials and then let's look at the revenue per user.

The crucial metric in q1 pinterest made 4.98 per user in the us and canada, 72 cents per user in europe and 8 cents in the rest of the world. These are incredibly low numbers, and that is great because there is so much room to grow remember. This is a platform that should be theoretically monetizing at much higher levels than other social media platforms, because it has a completely different shopping, buying spending money, type of intent, but they are just so early on in the development of their monetization that these rates are still Super low - i did a little comparison here on the right here - is the last four quarters of what pinterest has been making per user and what facebook has been making in the same geographies. This is an absolutely massive gap, so at the moment, pinterest is just starting or introducing many of these new monetization streams like the apis native shopping experience, shopping, video, pins, etc, etc.

They have a little chart here, showing how the revenue per user has been growing recently. It says it's been growing by 31 in the us 40 in europe and 164 in the rest of the world over the last 12 months, pretty epic numbers, although we have an interesting mathematical conundrum here, look at the numbers again: u.s grew by 31 percent europe by 40 percent rest of the world by 164 percent, but the average of those three numbers is 28. How can the average be lower than the three numbers that are going into that average interesting right? They obviously got that one wrong. Well, no! This is because the user numbers have dropped a lot in the same time period.

So when you're doing the starting point and the end point and you were working out the difference per sub segment, the total numbers of those sub-segments have also shifted considerably during this period. This is called the simpsons paradox in statistics, where a number of subpopulations can be showing one trend, but when you combine them all together, the trend can be different, or even sometimes the opposite. If there has been a shift in the distribution of those populations between the two observation samples anyway, i went and assumed the growth this year to be 33 for us and canada, because this monetization push is only just starting 40 for europe so below, where they're currently Growing and 60 for the rest of the world significantly below, where they've currently been working at and i've then kept it flat for 2023 and increased it slightly for europe. This is because i'm expecting there's going to be maybe some kind of resolution in the water in ukraine, or maybe some kind of bounce back, at least in advertising revenues that have come through over the last few months now.

I then have these growth rates here that are declining every year now, those year and year growth rates might look high, but it's because the earnings per user at the moment are very low for pinterest and even in 2027. Remember in six years time from today. I still have pinterest earning less than half of what facebook earns per active user today in the us and canada and europe and the rest of the world are even lower a tiny fraction of what facebook is making, and maybe these are extremely conservative. I actually think that they probably are very conservative if pinterest can fulfill on the potential of the monetization, because the intent of their users is certainly very different.

I'm happy to watch and adjust these if pinterest begins, showing that their monetization efforts are working better than expected and matching that potential. But what does all of this mean well using all of these assumptions that just walked you through and then sticking a 10 discount rate in there? As per most of my models, i get a target share price of 84.47 using the perpetuity approach, where i say that the business will continue growing at 5 per year on average after 2027, so that 10 discount rate basically kills all of those future streams off eventually - And then you get 120.77 if you use a 22 times ebitda multiple on those 2027 numbers. So there we go. My target price was 95 before this latest revision and i've just increased it slightly to a hundred dollars.

Based on some of the efforts that i'm seeing and some of the positive outlook numbers, i will be increasing my personal position in pinterest in the coming weeks and months and if you found this video useful, please don't forget a smash 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.