8/7/2023 0 Comments Infographic timeline resumeThe firm also added 50 customers that contribute more than $250k in annual recurring revenue (ARR). Its dollar-based net expansion rate, which measures the firm’s ability to increase revenue to existing customers, improved to 120% in 2Q21, up from 114% in 1Q21. The firm is successfully upselling customers. Revenue grew 29% year-over-year (YoY) in 2Q21, up from 26% YoY in 1Q21. What’s Working for the Business: Top line growth continues, as companies adopt or increase usage of online customer support channels. I first put Zendesk in the Danger Zone in August 2018 and reiterated my opinion in March 2020. Below, I’ll show what I learned from 2Q21 earnings and why Zendesk still holds 81%+ downside risk. For reference, Pinterest’s invested capital has grown 23% compounded annually since 2017. This assumption is unlikely but allows me to create best-case scenarios that demonstrate how high expectations embedded in the current valuation are. Implied NOPAT New Constructs, LLCĮach of these scenarios also assumes Pinterest is able to grow revenue, NOPAT, and free cash flow without increasing working capital or fixed assets. For reference, I include the TTM NOPAT of social media peer Twitter (TWTR).įigure 3: Pinterest’s Historical vs. If Pinterest’s growth falters, or even declines, the downside risk in the stock is even higher.įigure 3 compares the firm’s historical NOPAT and implied NOPATs for the two scenarios I presented to illustrate just how high the expectations baked into Pinterest’s stock price remain. Even if I assume Pinterest can double its ARPU, this scenario implies it has 982 million MAUs, or 216% of its TTM MAUs, 49% of YouTube’s MAUs, and 34% of Facebook’s MAUs. The stock is worth $28/share today – a 48% downside to the current price. revenue grows 17% a year in 2024-2028 ( projected industry CAGR through 2027), then.revenue grows at consensus rates in 2021, 2022, and 2023 and.NOPAT margin improves to 16% (Twitter’s best ever margin) and.PINS Has 48%+ Downside if I assume Pinterest can match Twitter’s best ever margin and have half the MAUs of YouTube and 1/3 the MAUs of Facebook. In a more realistic scenario, detailed below, the stock has large downside risk.įigure 2: Pinterest’s Implied MAUs vs. I think its overly optimistic to assume Pinterest will achieve margins on par with Facebook and increase MAUs 400%. See Figure 2 for comparison of Pinterest’s implied MAUs to its social media peers. At its current annual ARPU, ($5.16 at the end of 2Q21), this scenario implies the firm would have over 1.8 billion MAU’s, or 92% of YouTube’s MAUs and 63% of Facebook’s MAUs in 2Q21. In this scenario, Pinterest would generate $9.5 billion in revenue in 2028, which is 4x its TTM revenue. grow revenue at a 24% CAGR through 2028.improve its NOPAT margin to 36% (which equals Facebook’s TTM NOPAT margin, compared to Pinterest’s 10% TTM margin), and.Pinterest Priced to Rival Facebook’s Margins and YouTube’s MAUs: To justify its current price of $54/share, Pinterest must: Ultimately, Pinterest’s ARPU improvement is nowhere near what is implied by the stock valuation.īelow, I explain why investors with fiduciary responsibilities should be cautious about investing in Pinterest at anywhere close to the current stock price, even after the big price drop post 2Q21 earnings. New ideas in this space are commoditized almost immediately across all social platforms. It’s good to see that Pinterest’s ARPU was up in the most recent quarter, however, I do not see how Pinterest will ever be consistently profitable long-term given the competitive advantages of its primary competitors, who can mimic Pinterest’s offerings easily to their large audiences. In other words, Pinterest’s growth is in the least profitable markets, which makes achieving lasting firm-level profitability more difficult. Additionally, international MAUs are the only group that have grown since 3Q20. However, international MAUs are nearly 4x United States MAUs. In 2Q21, international ARPU was just 7% of United States ARPU. MAUs were down 7% YoY and total MAUs were up just 5% YoY, a deceleration from 2Q21 results.Īpart from declining MAUs, Pinterest faces a similar challenge as recent Danger Zone pick Snap. The firm noted that through July 27, 2021, U.S. Going forward, Pinterest expects weak MAUs to continue.
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