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Jul 14, 2022

Pinterest surges in rally on users, Elliott as top holder

Pinterest must face suit by woman who says she helped create the platform

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Pinterest Inc. jumped after reporting resilient sales and user numbers and Elliott Investment Management confirmed a major stake, saying it approved of the company’s leadership. Shares gained about 20 per cent in extended trading.

The company said it had 433 million monthly active users at the end of the second quarter on June 30, about the same as in the previous period, but a 5 per cent decline from a year earlier. Still, the numbers were greater than analysts projected. The site gained users during the early part of the pandemic as people stayed home but has had trouble retaining that growth.

Pinterest is a search-and-discovery platform that lets users create digital boards on travel, beauty, recipes and more. The company has worked in recent years to build a bigger e-commerce business to help advertisers and retailers sell products directly on the site. Co-founder Ben Silbermann stepped down as chief executive officer June 28, and was replaced by Bill Ready, whose experience at Alphabet Inc.’s Google and PayPal Inc. will help Pinterest pursue the online sales effort.

The Wall Street Journal reported Elliott’s stake as 9 per cent on July 15, sending Pinterest stock up 16 per cent. The activist investor said Monday that it’s confident in Pinterest’s direction.

“Pinterest is a highly strategic business with significant potential for growth, and our conviction in the value-creation opportunity at Pinterest today has led us to become the company’s largest investor,” Elliott said in a statement. The investor backed Ready as “the right leader to oversee Pinterest’s next phase of growth.”

The results and Elliott’s announcement sent shares to a high of US$24.68 in extended trading after closing at US$19.99 in New York. The stock is down 45 per cent this year.

Andrew Lipsman, analyst at Insider Intelligence, said the pop in shares is likely due to Elliott’s vote of confidence. He said Pinterest needs to prove that it can expand its users going forward.

“They need to get better at measurements in terms of tightening that link between exposure to an ad and a purchase behavior,” Lipsman said in an interview. “There’s a lot of unrealized opportunity there, if they can bring some discipline and improve measurement.”

Pinterest attributed the drop in active users to lower online traffic from a change to Google’s search algorithm, competition in the US and Canada from other “video-centric” websites and “the lingering impact from the pandemic unwind, particularly outside the US.”

Sales increased 9 per cent to US$665.9 million in the second quarter, the San Francisco-based company said in a statement. The revenue was in line with the analysts’ average estimate, according to data compiled by Bloomberg. 

Pinterest said average revenue per user globally was US$1.54, in line with estimates. The company generated US$5.82 per user in its biggest markets, the US and Canada, an increase of 20 per cent from the quarter a year earlier.

“We’re trying to make the shopping experience on the platform a better, more natural shopping journey with a rich array of products, surfacing the best ideas for our users that match their aesthetic taste and their preferences,” Chief Financial Officer Todd Morgenfeld said in an interview. “And we’re building an even more personalized experience in the product to make sure that when you come to Pinterest it feels like it was designed for you, your interests and your intent. That took a heavy investment in machine learning and core engineering to deliver.”

The company reported a net loss of US$43.1 million, or a loss of 7 cents a share, compared with a profit of US$69.4 million, or 10 cents, in the quarter a year earlier.

Sales will increase in the “mid-single digits” in the period ending in September, compared with the average estimate of 13 per cent growth.