Pinterest share price plunged nearly 15% on Wednesday after a muted Q3 outlook dashed expectations for a stabilization in its revenues. This is as heightened competition in the digital advertising space hurt the company despite broad-based recovery in the sector. Pinterest stock had a fall when the company reported its Q2 earnings on Tuesday.
The photo-sharing platform on Tuesday projected current-quarter revenue below analysts’ estimates, as it struggles to keep up with bigger rivals including Meta’s Instagram and Facebook and Alphabet.
The digital advertising market is bouncing back from a slump seen in 2022 and early 2023, but pockets of weakness are eating into Pinterest’s growth. The company, shed about $3 billion in shares due to competition.
Pinterest earnings report
Here’s how the company performed, according to LSEG:
Pinterest revenue: $854 million vs. $848 million expected
Pinterest earnings per share: 29 cents adjusted vs. 28 cents expected
The revenue pf Pinterest jumped 21% year over year, while quarterly net income was $9 million, or 1 cent per share, compared to a net loss of $35 million, or 5 cents per share, in the year-earlier period when total costs and expenses were $781 million.
Pinterest forecast
Pinterest said that it expects its Q3 sales to range from $885 million to $900 million, which equates to about 16% to 18% growth year over year.
Analysts were projecting revenue guidance of about $907 million.
“Our monetization efforts are paying off,” Pinterest CEO Bill Ready said in a statement. “Advertisers are seeing improved performance across key objectives on Pinterest — from brand awareness to conversion — as we continue to roll out AI powered products and experiences. As a result, we’re gaining share of advertising budgets with some of the world’s largest brands.”
Pinterest said that it had 522 million global monthly active users (MAU) for the Q2, topping analyst estimates of 520.1 million. Regarding the regional breakdown of Pinterest’s global MAU, the company said that the U.S./Canada had 98 million, Europe had 136 million and the rest of the world totaled 288 million. Analysts were expecting Pinterest to report 98.4 million for U.S./Canada, 136.8 million for Europe and 284.6 million for the rest of the world.
Weak demand
California-based Pinterest flagged material weakness in demand from advertisers in the consumer goods space. Particularly food and beverage companies, which offset strength in ad spend in the technology and financial services sectors.
“The optics of a lighter (third quarter) guide will not help recently growing ad fears, and some will be concerned that food & beverage pressure — which has been isolated — could spread to other verticals with a potentially softer consumer,” J.P. Morgan analyst Doug Anmuth said.
Pinterest could take yet another hit from the lack of political ads on its platform, unlike Meta and Alphabet which are set to benefit from political advertising ahead of the U.S. elections. RBC analysts noted it could be a “few hundred” basis points of a headwind.
Trouble for smaller ad players
Pinterest’s outlook could spell trouble for other smaller ad players such as Snapchat owner Snap and ad tech firm Trade Desk, analysts said, noting 18% of the gross spend at Trade Desk last year came from food and beverage firms.
“Slowing in ad spend and shifts toward promotions or discounts from (food and beverage) companies could cause some weakness in the digital ad markets…Ad platforms with fewer advertisers, more branded exposure are more at risk. Snap seems most at risk,” said Morgan Stanley’s Brian Nowak.
Stock update
Shares of Snap and Trade Desk were each up nearly 1% on Wednesday after dipping about 2% premarket. Pinterest looked set to lose about $2.5 billion in market value, with at least 13 brokerages cutting their price targets. Pinterest share price was down to $31.95 a fall of 14.46%.
