We weren’t expecting the market reaction we saw today with Pinterest and are now trying to determine if this was an over-reaction connected to the eBay and Etsy earnings, or if it’s indicative of a long-term trend in sentiment towards Pinterest, specifically. Etsy was down 15% today.
There was some misinformation circulating on the revenue miss, which is frustrating. Yahoo Finance! reported a miss of $2.5 million whereas the actual miss was $900,000. The lower number is confirmed by both CNBC and Reuters. Barlcays said on the call that Pinterest came in above their estimates. I put more info on Yahoo’s mistake below.
Other metrics:
- Company beat on earnings per share of 1 cent vs. expected 4-cent loss
- Beat on monthly active users of 322 million vs expected 311.8 million
- Miss by 1 cent on average revenue per user of 90 cents vs 91 cents, per FactSet
- Company guided for improved 2019 adjusted loss of -$10M to -$30M compared to previous estimates of -$25M to -$50M
- Company slightly improved the guidance on the low end to $1.1 billion to $1.115 billion. According to Refinitiv, analysts were expecting sales of $1.2 billion although this does not match company guidance.
I’m torn as the international ARPU is weighing on the company, as I spelled out in great detail in the PDF, yet the growth is also decent for a company of this size and I see a path to profitability here. If Pinterest can crack international ARPU, it will make an excellent stock and has the potential for surprising upside. Notably, Pinterest discussed a partnership with Shopify on the earnings call.
As I stated in the PDF, social media buy-and-hold positions should be done at valuations below 10 P/S, therefore, I do not have a buy-and-hold position. For my current momentum play, I am going to wait to see if Pinterest holds $19 at tomorrow’s close that Knox outlines below.
I think the sell-off today was irrational but that’s never stopped the market before, therefore, I’ll give it another chance tomorrow while holding firm to the $19 stop. If it closes below $19, we’ll close our position and regroup.
Technical Analysis:
The symmetrical move of PINS recent decline that started in July compared to the first decline in May (A)=(C), coupled with the RSI positive divergence shown in the last report, technically speaking, are indicators that lead to high probability trades. However, the market’s shift in sentiment towards high beta tech stocks is unpredictable, and PINS, even with reporting a miss of $900K in revenue yet with a few upside surprises like monthly active users and adjusted EPS, was a steeper decline than anticipated.
The original analysis provided stop suggestions at $24.50 or $22, depending on your risk tolerance. We have blown through both after hours, and look to be opening just above the 161.8% extension around $19.30, creating a massive gap, and all new lows.
One thing about the market is that it hates gaps, and more times than not, eventually will fill them in. We believe the earnings report may have been an over-reaction. We are personally going to see if the price closes above the 161.80% retrace at $19 before closing the position.
Yahoo! Finance Error ..
Not sure how many people pay attention to Yahoo! Finance but they made an error and reported a miss of nearly 250% higher than the actual miss ($900K vs. $2.5M). May have not had any material impact but I thought it was important to look deeper into this.
This was confirmed inaccurate after checking Yahoo’s website more closely. i.e. it was not a different reporting source for analyst estimates, rather was a misprint.
