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Why Pinterest Has “Monster Stock” Potential

Companies / IPOs Nov 02, 2020 - 04:55 PM GMT

By: John_Mauldin

Companies

By Justin Spittler

Shares of Pinterest (PIN) soared 27% last week after the company reported third-quarter earnings that crushed analyst expectations.

And I see PINS heading higher in the coming months. In fact, Pinterest has “monster stock” potential. You see, Pinterest is a different kind of social media company. Unlike Facebook (FB) and Twitter (TWTR), Pinterest isn’t a place where people spew negativity, engulf conspiracy theories, or argue about politics.


Instead, folks turn to Pinterest for inspiration. They discover new cooking recipes, get home décor ideas, and browse the latest styles. This unique approach has made Pinterest one of the world’s most popular social platforms. The company has more than 400 million monthly active users (MAUs) worldwide. And more than 100 million of those users were added in the past year.

But Pinterest Is Focused On More Than Just Sky-High User Engagement

It’s also emerging as a leader in the booming ecommerce field. Almost 80% of Pinterest’s users base their shopping decisions on “pinned” items. That’s a big reason why Pinterest has become America’s top social media platform for shopping.

Today, Pinterest earns about $0.70 per international user. That’s solid. But Pinterest is still very much in the early stages of monetizing its huge user base. And there’s ample room for it to grow in this department. Facebook, for comparison, earns about $7.00 per user. Pinterest is aggressively pursuing this opportunity. Earlier this year, it launched a new app with Shopify (SHOP) to make it easier for merchants to attract new customers and grow sales.

In short, Pinterest is probably the most overlooked major player in two of today’s hottest markets: social media and ecommerce. Together, this market—the social commerce industry—is projected to grow at a compounded average growth rate (CAGR) of 31.4% over the next seven years. By 2027, it will be a $604.5 billion industry.

Pinterest Is Also An Emerging Player In The Digital Advertising Space

This year, COVID has helped grow the global digital-advertising and marketing industry to an estimated US$323 billion. The industry is projected to reach $640 billion by 2027, growing at a CAGR of 10.3%.

According to the research outlet eMarketer, advertising on Pinterest’s platform among US marketers grew from under 25% in 2016 to nearly 36% this year. Pinterest largely caters to small and medium-sized businesses (SMBs). During the second quarter, SMBs accounted for nearly half of Pinterest’s revenue.

Now, some people might think Pinterest is at a disadvantage because it serves SMBs. After all, these businesses have been disproportionately impacted by COVID. But American entrepreneurs aren’t going to roll over and die. Instead, they’re taking their businesses digital. And that means big money for companies that bring SMBs into the digital age.

Square (SQ)—a fintech trailblazer that primarily serves SMBs—has been one of 2020’s hottest stocks. It’s raced 164% higher since the start of the year. Shopify is another an example. It has exploded 136% this year.

Digital advertising stocks have also been on fire. The Trade Desk (TTD)—a leader in digital ads—has soared 145% since we covered the stock in the RiskHedge Report last DecemberDigital Apps (APPS) another digital ad pioneer—has done even better… surging 326% higher in 2020.

I expect Pinterest to follow a similar trajectory in the coming years. In fact, it could easily become a $100 billion company within three to five years.

But Pinterest isn’t just a remarkable growth story. It’s also a screaming buy from a technical analysis perspective. Pinterest’s recent price action also suggests massive upside. After yesterday’s big move, it just emerged from a huge base that it’s been forming since its IPO.

It’s also worth pointing out that trading volume for PINS has picked up significantly since April. This indicates heavy accumulation. In fact, we know that the “smart money” has been loading up on PINS. According to HedgeMind, five of the top-performing hedge fund managers are currently invested in Pinterest. That’s outstanding for a recent IPO. These are not investors we want to bet against.

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By Justin Spittler

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

John Mauldin Archive

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