The Pinterest (NYSE: PINS) stock price plummeted to the lowest level since May 2020 as investors worried about the social media industry. The shares are trading at $17.56, which is about 80% below its all-time high. This decline has brought the company’s market cap to about $11 billion.
Social media stocks crash
Pinterest is a social media and commerce company that is mostly popular among women. The company generates about $2.5 billion in revenue every year. And in 2021, it made its first full-year profit of more than $300 million.
Pinterest was one of the top stay-at-home stocks as more women turned to its platform for inspiration on home makeovers and other activities.
Now, like all companies in the sector, the Pinterest stock price has crashed hard. The current market cap of about $11 billion is sharply lower than what PayPal was prepared to pay for the firm. In 2021, there were rumours that PayPal had offered to pay $40 billion for the company.
The PINS stock is now crashing as investors react to the profit warning by Snap. In a note, the company’s CEO said that the company’s business was changing and that its results will come below the lower side of its range. As a result, Snap shares fell by over 40% while other social media firms plummeted as well.
In its most recent quarterly results, Pinterest said that its revenue rose by 18% YoY in the first quarter to over $575 million. It attributed the strong results to its international business and the strngth of its retail advertisers. Now, after the weak Target and Walmart earnings, there are concerns that the company will see less advertising dollars.
Is Pinterest a good investment?
Pinterest stock has become incredibly cheap in the past few months. However, the company is facing substantial headwinds that will affect its profitability. First, it is facing significant competition from companies like Snap an TikTok. In its most recent earnings call, the company’s CEO said:
“We also felt the impacts of lower traffic from search and time spent by people on competitive platforms.”
Second, the company is finding it difficult to add more users in its ecosystem. This is partly because the firm targets a relatively small niche of customers. In the most recent quarter, the company’s mobile app users declined by 6%.
Third, with retail sales falling and inflation rising, the company will find it difficult to meet or even beat analysts’ consensus on revenue and profitability. Therefore, for now, there is a possibility that the Pinterest stock price will keep falling in the near term.
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